Desire is our basic emotion and there is a cost involved in satisfying these desires. Sometimes, these costs are often more than we can afford. This is where the loans come in.

Whether it's for a home, a car, a business, or any other large investment, the ability to borrow money enables us to buy large assets.s

Financial discipline and the amount of debt

Any loan, big or small, short or long-term, requires financial discipline. You can't look at a loan in isolation - it should be considered part of your overall financial picture and repayment capabilities. If you plan to take out multiple loans, look at the total number of times and make sure it matches your budget.

Large assets are often made possible by large loans. However, some of us may be uncomfortable with the idea of taking on significant debt. In such cases, it is most advisable to reduce the loan amount as much as possible by making substantial down payments. On the other hand, there are situations where borrowers can collect the initial commitment amounts and choose the maximum loan they are eligible for.

Loan term

The maximum home loan tenure offered by all leading lenders is 30 years. As the tenure increases, the EMI decreases, so we are tempted to take a loan of 25-30 years. However, it is better to take a loan for the shortest period that you can afford. For long-term loans, the interest is very high. In a 10-year loan, the interest is 57% of the amount borrowed over the term of the loan. If the tenure is 20 years, it will go up to 128%.

A 10-year loan with 57% interest: Assuming you decide to secure a loan and repay it in 10 years, the cumulative interest over the term of the loan will be 57% of the amount borrowed. For example, if you have borrowed ₹1,00,000 for a period of 10 years, you will have to pay ₹57,000 plus interest on the initial amount of ₹1,00,000 which will end up in a total repayment of ₹1,57,000.

A 20-year loan with 128% interest: Extending the repayment period of the loan to 20 years significantly increases the total interest cost. In this case, the interest distributed throughout the term of the loan is 128% of the amount. So, for a similar loan of Rs 1,00,000, you will have to pay back the principal of Rs 1,00,000 and an additional interest of Rs 1,28,000, which will be Rs 2,28,000 over 20 years.

In some cases, you may need to take out long-term loans. A young person with a low income will not be able to borrow enough if the term is 10 years. The EMI will have to be extended to suit your pocket. The best option for such people is to increase the EMI amount every year according to the increase in income.

Don't borrow more than you need

Our desires are often greater than our abilities. Since you've been approved for a certain loan amount, you don't automatically have to borrow the maximum. Look carefully at your sources of income and expenses, and avoid a situation where your debt-to-income ratio is too high. While lenders may approve you for more, we need to determine what is practical for our situation.

Avoid borrowing

It's easy to borrow money, but it's very risky when you take out large loans for things like houses. Big financial commitments require thorough planning and research - don't rely solely on whims and fancies. Make sure you understand the figures and that you can actually afford the loan.

Maintain financial stability.

Economists say that the total monthly EMIs should not exceed 45-50% of your total income. This makes it possible for you to stand up well and navigate through planned and unplanned situations. In addition, it protects against potential interest rate fluctuations, ensuring the stability of our cash flows.

Diversification and long-term planning

In addition, it's important to take into account other costs, such as insurance premiums, and plans for emergencies, health setbacks, and retirement should be set aside for expenses like ours. Diversification is important in managing a debt portfolio, which consists of a healthy mix of secured and unsecured loans along with active credit card management.

Before embarking on the journey of taking a loan, it is paramount to understand the motivations, plan repayment strategies, and diversify the loan portfolio wisely. By doing so, we can walk on the path of economic empowerment, while recognizing that loans are a tool for progress rather than burdensome liabilities