One of the biggest mistakes that borrowers make is comparing the interest rates alone. Be it a Business Loan, Personal Loan, Home Loan or any other type of borrowing, using interest rate as the only benchmark isn't the most effective and prudent way to go about it when opting for a loan product.
As a business owner, you know how pivotal cash flows can be at critical junctures during business operations. Hence, it’s always a good idea to stay abreast of the various ways in which you can finance your business, as and when the need arises. Among these sources, the fastest way to raise funds is through a Business Loan.
Gone are the days when the loan process took several days, needed enormous amounts of paperwork, and multiple trips to the lender's office. Poonawalla Fincorp, for instance, prides itself on its super simple digital loan process: check your eligibility on the website, use the EMI calculator to understand how the loan will impact your finances, then apply for the loan application online and upload the necessary documents. Poonawalla Fincorp's entire loan process occurs online - in fact, maximum borrowers of its business loan product have never even stepped into their offices.
You may have noticed an extra step in the loan process we just described above: use the EMI calculator to understand how the loan will impact your finances. Why is this step important and how does it benefit you? Because interest rates alone won't tell you the whole story.
Understanding the total cost of the loan
When we compare interest rates, are we comparing EMIs? Unfortunately, no. A loan EMI can change based on the loan amount, interest rate charged, and the tenure of the loan. The longer the tenure, the lower the EMI, but the higher your total interest burden. The reverse is also true - the shorter the tenure, the higher the EMI, but the lower your total interest burden.
By and large, you want to take a loan at the lowest interest rate, for the shortest tenure possible. However, that can burden you with an EMI that can be a stretch for you each month. This approach may leave you with a wafer-thin margin of error - and that's never a good idea where your finances are concerned.
Financial prudence comprises equal parts sound judgement and sound information gathering. To serve its customers with the best product & services, Poonawalla Fincorp provides a free EMI calculator on its website, for each of its loan products. This EMI calculator encourages borrowers to use the calculator to play out the various scenarios to arrive at the right tenure and EMI and understand the total cost of the loan. This ultimately helps customers plan their finances better.
Transparency goes both ways
Another common mistake borrowers can make is not understanding the implications of all the charges and penalties associated with the loan. As with all financial instruments, it is always advisable to read your documents carefully. Take the time to understand the terms and conditions, penalties and any hidden clauses that may be triggered in case of defaults or delays. Sometimes, despite your best intentions, you might find yourself in a situation where you can't meet your monthly EMI commitment. If you know beforehand what that's going to cost you, you won't be taken by surprise.
It's also a good idea to look for loans that don't penalise the borrowers for loan pre-payments. After all, you should be allowed to use your gains and windfalls to reduce or get rid of your liabilities! Poonawalla Fincorp, for one, doesn't charge borrowers any pre-payment fees or penalties, thereby allowing them to make the most of their windfalls to reduce their interest burden.
Eligibility criteria for business loan and use of collateral are other key parameters to consider. Some Business Loan products require borrowers to pledge collateral with the lender. Others may involve complex eligibility criteria. It's always a good idea to understand the requirements of these loan products beforehand, to avoid last-minute surprises. Poonawalla Fincorp understands how critical these decisions can be, and how detrimental a wrong decision can be for your business and those who depend on it. In the vein of being as transparent as possible, Poonawalla Fincorp has all its charges, penalties, terms and conditions available to be referred to on its website, up front. Also, Poonawalla Fincorp's Business Loans do not need collateral to be kept with them for extending a Business Loan to an eligible applicant.
Poonawalla Fincorp see themselves as enablers in India's business ecosystem. They understand your needs, which is reflected in their product line that encompasses loans for all your business requirements. They understand how time sensitive the loan requirements can be, which is reflected in how short & seamless they have designed the loan process journey. And they also understand what a customer requires to make prudent decisions, which is reflected in not just their transparency, but also in their interest rates, which are among the lowest in the industry.
Moneycontrol journalists were not involved in the creation of the article.