Top 10 Disadvantages of Taking a Loan

Is the tuition fee of your dream college unaffordable for you? Want to start up a small scale business but no available investment?? There is this new car in the market that’s gripping your heart but your pocket doesn’t let u, what to do then?! Your daughter is getting married but your savings is insufficient…alas!! You want to get your family a nice home to live securely yet u don’t have enough financial resources!! Then comes this LOAN into picture. Loan is defined as an arrangement in which a lender lends some   money  to a borrower where the borrower agrees to repay the money, normally along with interest, in certain intervals of time.

Depending on your needs there are many loans that banks are offering like Student loan for education purpose, Business loan for starting up a business be it small scale or large scale, Car and other auto loans for taking cars and other heavy transport vehicles,Personal loan for wedding or some other special vacations that you are willing to go for, House loan for taking a new home, etc. These days loans have become essential part of everyone’s life. Though you have to repay it in certain intervals of time with some interest people are still going for them. Students are taking student loans on a large scale to get into various colleges or study abroad where expenses are too high. Home loans have also picked up in number. People find it comfortable to pay it off from their monthly salary from time to time consistently. However there are certain disadvantages pertaining to it that everyone must have a look before going to take a loan. Let us go in detail of these disadvantages for various loans.

10. LONG-TERM DEBT!!
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Loan is something that you are bounded to it for a considerable long period, say it as a long term debt. This implies that you have to commit yourself to making timely payments according to the agreement for the period indicated in the agreement to repay the loans.Also they impose high interest rates that it becomes difficult to repay principal and interest in monthly payments.

9. FAILURE TO PAY MONTHLY PAYMENTS

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Sometimes you may not be able to pay your monthly payment because of medical bills or some other emergency inevitable expenses. You might have paid for a surgery or there was a need to buy some domestic appliance for your home. In those cases you will have to face penalties and legal issues. Additionally, it may also reflect in your credit rating which can lead to low credit rating. Credit rating is nothing but checking the credit worthiness of an individual or an organization. This is something to worry about.
8. JOBLESS??!!

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What if you get fired? You have no monthly pay slip and if there are no savings left with you. Your business may be running in losses. Then there is no excuse!!!U will not be able to repay your debt. This may result in foreclosure and sometimes repossession of your assets or property as mentioned in the agreement. The assets may be site or your house or sometimes gold also. So before taking up a loan decide on the amount according to your capabilities in case of failure also.

 

7. EARLY REPAYMENT:

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In case you have enough cash in your hand that you can clear up your loan, then also there are few exceptions!You may not be able to make early loan repayment even though you have the required cash in your hand. Few lenders give option for early repayment but there are few who don’t allow you to do this. Instead they charge you with early repayment fees sometimes with higher amount!!

6. FINANCIAL IMPLICATIONS:

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Considering student loans, there are financial implications associated with it. Interest Rates are not fixed but rather they are fluctuating, i.e., the interest on the principal you have taken keeps on changing from time to time according to the norms of the company which affects how much you have to pay back in the future. This can create a burden on your monthly salary once you start working.

 

5. NEVER ENDING!!

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Also student loans are bound for a very long period up to 25 or 30 years. This makes you financially down for that whole period. U cannot save much even though you have a good salary since most of  it goes in repayment of the loan.It will be difficult to keep your financial condition up or to buy valuable properties during this time. Its something that u cannot take off your shoulders very easily.

4. INCAPABLE OF REPAYING STUDENT LOAN

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If you are not hired by any company after taking an education loan then it would create the worst scenario since you will not have any cash inflow. Also sometimes Students get trapped in the pitfalls of unsuitable education loans because of lack of proper knowledge about the loan procedure, terms and conditions of the banks. In most of the cases the disclosures for securities (like mortgages or surety) are  presented in a very complex manner that makes it difficult to understand for applicants. Because of such complexity present, applicants are not completely aware with the  risks associated with availing the loan amount. Thus when repayment process starts , the borrowers remain clueless!

3. HOUSE LOAN-HECTIC!!

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There are many problems in case of disbursement of house loan amount. Sometimes disbursement of the amount is done to customers very lately due to legal formalities thus posing a problem on them. To check the authenticity of the submitted documents every bank conducts a thorough legal check on them. Banks as well as  finance companies are indeed careful about the property for which they are going to sanction a loan. You need to present various documents and attested certificates by a lawyer which makes house loan a hectic one.

2.ENTREPRENEURS- Be Careful

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In case of business loans they are sanctioned with some security often the entrepreneur’s house or some other valuable property. This results in  the risk of getting lost to the bank if  the business fails to do well.With a small business loan, you cannot have access to the amount that you have repaid to the bank which indicates that  you would get more money only by applying  for a new  loan. This is a bottleneck for these loans and hence one should be very decisive regarding taking business loans to setup a new business.
1.TAKE A LOOK

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Above all the most commonly committed blunder is that the loan agents specify only attractive features of a loan instead of the risks and losses that may be incurred in case of failure. Many people don’t read the agreement papers in detail and get dumped.Mostly they make benefit from the illiterate people and farmers who take up loans for their needs. Banks cash high interest rates and sometimes cheat on the borrowers who are not alert and attentive of the loan features hence they remain helpless.

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