Instant gratification has become a defining aspect of millennials' behaviour. Generally speaking, millennials consider the tendency to wait for good things to happen as an old school way of living. This tendency of instant gratification has seeped into their psyche so much that they do not realise what they miss in acquiring things in the quickest possible manner.
Today, the generation gap between an octogenarian and his millennial grandson can be captured best in their two diametrically opposite narratives on the same subject. For the octogenarian, "loans are a burden and hence, a strict no", while for the millennial, "loans are enablers". Today, millennials use loans as stepping stones to reach their goals. But in a hurry to turn their dreams into reality, they commit a few mistakes. Here are some of them:
Data privacy
Most millennials prefer to borrow online. Many go to 'app-based' financiers to quickly raise money. While doing so, some of them carelessly upload whatever personal details and documents asked for. But be careful. Do check the authenticity of the website or app. Do not provide details unless you are sure about the genuineness of the request. Sometimes the data so provided can be used against you. You may become a victim of identity theft.
Talk with the lender to overcome such a situation. Share what is material to your loan application. More importantly, ensure that you do not end up posting your vital documents on your social media accounts by mistake while applying through your social media logins. It can cost you dearly.
Disregarding costs
If you are running short of time, there is a chance that you may not calculate the cost of loan. EMI amounts may look affordable, but sometimes they make you ignore the rate of interest. The lure of zero interest offers, make you pay for a flat fee that amounts to couple of percentage points of the loan amount. These are real costs borrowers pay. Sometimes borrowers can't differentiate between flat rate of interest and reducing rate of interest. Use online calculators to ascertain how much you are paying. If you do not understand the real costs associated with the loan, do ask questions. Spend some time to arrive at the precise numbers.
Terms and conditions
When most of borrowers reach the 'terms and conditions' page, they simply go to the bottom to look for the space earmarked for signature. In case of online application, they look for the 'I accept' checkbox. But this lethargy can prove to be costly. The small print is the home for additional charges, powers of lenders and restrictions on you. It is better to read through the page. If you are not sure about something, ask the lenders to explain the meaning to you. It is not what you think, but what the lenders mean that matters.
Salary account
Banks typically offer their account holders 'pre-approved loans'. This makes many lap up the same without a second thought. The idea is to avoid unnecessary efforts. However, these may not be the best deals in the market. In today's digital banking era that provides door-step services, you should be more than keen to explore the market for loans. Always compare offers by various lenders. This does not take much effort. You can compare and pick the best offers from the comfort of your house. You save a lot of money and more importantly, you become financially smarter.
Credit habits
Availability of loan cannot be the reason to borrow. Unfortunately, it is the case with many young borrowers. Do not borrow just because there is an 'offer' associated with it. Especially when you are paying for 'wants', you must be prepared to pay all by yourself. Of course, there will be times when you have to go for loans. Even in those circumstances, conduct yourself with due diligence, and borrow money which you can repay based on the repayment schedule. Never over-leverage. As a rule of thumb, not more than 40% of your salary should go towards servicing your loans.
Failure to repay your loans dents your credit score. If you go overboard, you will end up in a debt trap. If you have reached this situation now, talk with your lenders. They will offer you a consolidated loan which you can repay in small installments over a longer time period. It will help you emerge clean.
GO EASY ON LOANS
Be wary of risks like data theft and be aware of the cost involved while applying for the loan
Avoid going into debt trap and if you do fall into one consolidate your loans
The writer is ED and CEO, Essel Wealth Services
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