Eligible Borrower is Fine, Are You a Responsible One Too?
If you want to grow your financial base, loans are the most feasible and helpful option to look forward to. From making investments in businesses to long-term investments like a house, loans help you find an instant solution for all your financial woes.
There are different kinds of loan options in the market that you can opt for including- car loan, home loan, education loan, and personal loan in UAE. You can select the kind of loan depending upon your requirements.
The point of discussion is that when it comes to lending and borrowing, the majority of the people consider it to be pretty straightforward and simple. However, the reality is different from this assumption.
Whenever you borrow an amount without taking its terms and conditions in serious consideration, the obligation of fulfilling those may end up ruining the purpose for which you applied for the loan in the first place. Hence, it becomes important for a person to be careful while taking any kind of loan.
Let us discuss a few habits, which make trustworthy responsible borrowers different from those who might end up stuck in a financial crisis.
Having a Cushion is Essential
Keeping a financial cushion for yourself is important in life, and in the case of a loan, it is not just essential but also ideal. If you are a salaried person, you should always maintain a savings buffer and an emergency fund account.
In case you are the owner of a business, the amount you can keep aside as cushion will depend upon the scope of your business and the industry you are working in. You must spare at least the amount that is equivalent to a half year of your operational expenses. This will help you in dealing with unexpected costs whenever you end up facing them.
Calculating the Debt-to-Income Ratio
Also called Debt Burden Ratio or DBR, the debt-to-income ratio refers to your indebtedness level. It calculates the portion of your monthly income, which will go towards the present monthly installments of your loan.
For every individual borrower in the Emirates, the UAE Central Bank has put a limit of 50% on the DBR. Whenever you approach lenders for a new loan, they will take this limit into consideration. Hence, you should calculate your DBR in order to avoid excessive leveraging by taking up more amount of debt than you have the capacity to repay.
Take a Loan When You Really Need It
As a matter of fact, this is one of the most crucial rules when it comes to loans- only borrow when you actually have to, do not opt for one just for the heck of it.
It is important to evaluate before going ahead with a loan as there are various hazards, risks, and downsides involved with it. Moreover, it is not necessary that loans are the only solution if you are in financial ruin.
In order to liberate the flow of your money, you can also try alternative channels. You can try to downsize, reduce your overheads, and find different and efficient ways of increasing your income.
Making Repayments on Time
Once you have taken a loan, it is very important to keep up with your schedule for repayment. Make sure that you are never late for making repayments. Having said that, in case you ever come across a situation where you are unable to make a timely payment, inform your lender in advance.
It is very crucial to have a good communication channel with your lender. It is not just your moral responsibility but also keeps you immune from accumulating more penalties and a negative impact on your credit report.
Utilizing a Loan Calculator
There are various digital tools in the UAE market, which are designed for helping you in measuring the most accurate amount of loan that you need. Make use of these tools or calculators before you head in for a loan.
These calculators will help you in estimating the number and amount of installments every month and the overall schedule of repayment. Using this information, you will have a better idea of the amount you can obtain as well as pay off.
For instance, if you want to apply for a personal loan in Dubai, you can use a personal loan calculator to estimate your monthly installment amount on basis of your principal, loan tenure, and the rate of interest.
The Bottom line
The bottom line is that you may be eligible to become a borrower, but is essential to be a responsible one at that. Not just for ethical reasons, it is also important for maintaining your credit rating. If you are planning to apply for a loan and wish to be a trustworthy and credible borrower, then the above-mentioned principles may help you big time.