6 tips for smart borrowing

By: People Lend

We work hard, cut costs to save money and invest to keep up with the ever-rising costs. However, there are times when certain situations put us in a spot where borrowing funds is the only choice we have. While a loan is a liability that you would want to avoid, if you need to avail a loan, then here are 6 tips to be a smart borrower.

1. How much do you need?

Let’s say that you are looking for a loan to meet the sudden expenses due to a marriage in the family. Before you start looking for a loan, calculate the amount that you need. A home loan or a car loan is offered based on the value of the asset. However, a personal loan is based purely on your repayment capability. This means that while you might qualify for a bigger amount, avoid the temptation of borrowing the maximum. Remember, it is a loan and attracts interest. Higher the loan – higher the monthly instalments. Decide judiciously.

2. Compare options

Once you know are clear about the amount that you are looking for, start looking for lending institutions. Most people approach the bank that they hold their accounts with as a logical step. However, understand that keeping your assets and liabilities with the same institution has no special benefits. Spend time and look for options before you finalize the institution through which you would want to avail a loan. Pay attention to the processing speed, fees and charges and post disbursal service.

3. Understand the terms of the loan

What is the interest rate? What is the due-date? Is it after your salary date? What about pre-payment terms? Look at all aspects of the loan not just the interest rate. Once you start looking at options, create a laundry list of features that you would want to compare. Then tick them off with each loan provider that you choose. This will give you a good perspective about which the loan that would work well for you in the long run.

4. Read the fine print

Most of us have the habit of NOT reading the fine print. Whether you are investing or borrowing funds, inculcate the habit of going through the fine print. To give you an example, most people are unaware of the fact that a bank can mark a lien against your deposits if you default on repaying your loan held with the same bank. This was always mentioned in the ‘fine print’. However, most of the borrowers just didn’t read. Reading and understanding the fine print can ensure that you make a well informed decision.

5. Make a repayment plan

So, you have determined the loan amount, looked for options and finalized the lender, read the fine print and are ready to sign the dotted line. Not yet. Have you thought about the repayment plan? How do you intend to repay the loan? Just keep paying instalments for the tenure of the loan? That’s not being a smart borrower. You must endeavour to repay your loan early as it can help you save money on interest payments. So, if you are planning to take a loan for 5 years, devise a repayment plan that can help you clear the dues within 2-3 years. Remember, having such a plan is essential before you apply for a loan.

6. Consider alternative borrowing options

Banks and financial institutions were the only places one could turn to for a loan. However, that’s not the case anymore. The digital landscape has given rise to fintechs who offer financial services as an end-to-end process via the internet. These fintechs have revolutionized the lending-borrowing landscape around the globe through Peer to Peer lending platforms. Many borrowers are opting for these platforms for their loan requirements.

People Lend, a trusted P2P lending platform, allows you to interact with Retail lenders and avail loans faster and at rates commensurate with your risk class. You can negotiate interest rates, tenure of the loan and can also borrow from multiple lenders. P2P platforms don’t rely solely on your CIBIL score to determine the loan eligibility. Instead, they leverage technology and use various aspects like your location of residence, trends of expenditure, income, etc. before assigning a risk class to your profile.


You don’t have to be a financial guru to make smart borrowing decisions. These tips can help you avoid the common mistakes made by most borrowers and avail a loan smartly. Like investments, loans require financial planning too. An unplanned loan can cost you both time and money.

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