The borrowing of 10 lakh is a huge financial liability which needs proper planning and strict management. Although personal loans offer flexible financing of various demands, the high amount of money leads to lifetime financial commitments that influence your economic stability over a long period of time. I have seen people change their lives positively by using their loans in a strategically planned way by investing in education to multiply their earnings, incurring costly debts that relieved them of the need to pay monthly, or investing in ventures that yielded more returns than the borrowing.
Determine Real Affordability prior to Borrowing
This is what the majority of people misjudge: they take into consideration the possibility to make monthly EMIs and pay them without thinking about the overall repayment sums and opportunity costs. A 10 lakh loan emi for 5 years at 14 percent interest results in approximately Rs. 23,265 monthly installments. Sounds that one can afford at Rs. 75,000 a month, right? However, have a closer look- you will recover around 13.96 lakh altogether, that is 3.96 lakh in interest. It is money that could have been invested, saved as an emergency fund or utilized towards other financial purposes.
High-Return or High-Value Uses should be given priority
Smart borrowers invest personal loans in activities that will provide real long term benefits to an individual beyond the cost of borrowing. Investing in professional training or skills improvement that leads to higher earning capacity is a great way of using loans when the increment of income greatly exceeds the EMI payment. Combining a number of high interest debts such as credit cards at 36-42 percent a year or a couple of smaller loans into one lower rate personal loan significantly cuts down the monthly interest and makes the loan much easier to repay.
Look at Shorter Tenures where You Can
Though extending the loan tenure lowers the monthly payment of EMI, the overall interest paid is very high. When you have a little more that you can afford to pay in a budget, then it is better to pay shorter tenures and save more money. For instance, an instant short term loan of 10 lakhs at 14 percent over 3 years costs approximately Rs. 3.43 lakh in interest versus Rs. 6.78 lakh over 7 years—nearly double.
Construction Emergency Reserves and Repayment
Always have separate emergency funds and never borrow the maximum that you can get. Even when paying off loans, financial advisors say that it is better to maintain 3-6 months of expenses in liquid savings. Such a buffer helps to default EMIs in case of any unexpected cost, which helps to safeguard your credit rating and prevents the penalty charges that add to the financial strains.
Conclusion
A 10 lakh personal loan may be a mighty subsumption or a killer depending solely on the manner in which you utilize them. Borrow to use on high value items, have a comfortable ability to pay, take the right tenure where monthly payment is affordable but total cost is not excessive and have emergency savings.
