Right now, the world is talking about Evergrande, the Chinese real-estate giant almost 300 billion dollars in red, teetering on the brink of confirmed payment defaults, threatening to bog down the Chinese economy and the global one at large, with experts terming this as China’s very own Lehman moment.
According to reports, founder Xu Jiayin borrowed heavily over time to build this now-crumbling empire. Out of the 310 billion dollars outstanding debt the company had amassed, the largest for any publicly traded real estate company in the world, almost 37 billion dollars was due shortly, massively exceeding the company’s total cash balances of just about 13 billion dollars.
Now, with almost 800 unfinished residential projects, millions of partially invested home buyers, and unpaid suppliers, Evergrande is perhaps quickly becoming a study in ineffective debt management.
Availing Loans At the outset, personal instant loans are a supremely convenient option to meet your immediate financial requirements and desires. And since there is no requirement of collateral as well, they are easier to avail, but beware!
Unsecured as they are in nature, extremely high-interest rates tow these loans. Hence, here is your 5-point guide to look out for before applying for these loans, so that you don’t sign up for a financial nightmare!
- Ensure the authenticity of the platform and process
Make sure that the platform you’re borrowing from has RBI authorization, licenses and is registered as an NBFC, bank, or as an organization partnering with the two. Lack of display of the license number prominently on the website is a red flag, and however lucrative the interest rates might seem on such sites, it's best to steer clear from such platforms.
Per Charlie Lee, Founder, and CEO, True Balance, “There are innumerable illegal instant loan applications, but that doesn't take away from the fact that there are enough and more lending platforms that are licensed by the RBI and authorized to lend credit safely and securely. Consumers need to, however, ensure to check a platform is government authorized and recognized. The company must also have a registered office in India. The entity should have a functional website. Most importantly, borrowers need to check for necessary compliance such as licenses, investments, and the transparency of the processes, which is typically shared on the company's website.”
Another red flag to look out for is the disbursal of loans without carrying out KYC. To maintain transparency and credibility, all major lending platforms run an online check to validate and authenticate your identity via Aadhar.
- Take only when urgent, and only when you need
With lending platforms disbursing loan money in a matter of minutes, the temptation to give into borrowing a higher amount can be immense. But remember that a higher amount comes with higher interest repayments, which means you will need additional funds over the coming months to pay back the EMIs.Consider your financial situation during the loan repayment tenure to ensure you are on the safe side. As per personal finance strategist Nema Chhaya Buch, borrow only when it is urgent.
“The loan amount, ideally, should not be very high, with due consideration given to the interest rate charged. Check for important details like your credit history, repayment tenure, your financial position during that period, loan agreement details, and more”, she elaborates.
- Consider any alternative loan avenues and all hidden charges
Before applying for a personal loan, consider other alternatives like loans against FDs, gold, or shares. Since these loans have an asset as collateral, the interest rates will be generally lower, meaning you will be saved from the hefty interest payment amounts that usually comes along with personal loans.
In the case of gold, for instance, Ankur Gupta, co-founder, Ruptok Fintech, envisions immense digital disruption potential in the Rs 4 lakh crore and growing gold loan segment, given that a major part of this sector is unorganized and there is an immediate demand for quick solutions to take online this conventional yet favored avenue of availing loans, which was only exacerbated by the deteriorating economic conditions during the pandemic.
In addition, read through the loan agreement carefully, so that you are not entrapped in paying heavy hidden charges like prepayment fees or late submission charges. Comb through the loan document carefully so that you don't end up paying more than required.
- Have a Plan B, in case
What happens in case you default on a payment or payments like Evergrande? Granted, the quantum will not be as large, but the consequences will just be as adverse for your financial health, including a lower credit score, rising financial stress, and a reduced chance that you will be easily granted a loan in the future when needed since such defaults indicate your unreliability as a customer. Have a solid plan and some additional corpus ready so that you can comfortably pay off your loans and not negatively impact your credit score.
Avoid multiple loan applications at once for a better credit history
Applying for multiple loans at the same time shows immense financial stress and hence, can put a red flag against your name in the books of lenders. And every time your application is reviewed and your credit report is checked, your score falls. Hence, plan your application in such a way that it meets the lender’s criteria in the first go, negating the need to assess your reports over and over.
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