Why do People fall into the Loan Trap?

The loan is helpful and makes your life easy if you handle it carefully. However, if you are not punctual at the time of personal loan repayment, you need to watch out. Debt is good if taken care of with responsibility. If you are taking it in a casual manner once you are done with the fund, it will end you in a great deal of mess. Life will not be easy. There will be no peace as you will be subjected to harassment from banks and financial institutions. You need to keep up that pride and make sure that you are handling all your loan-related queries in the best possible way. You need to consider various aspects of your loan so that it is not a burden for you anymore in the future. It is better if you take an informed decision only after you know your ability to pay. If not, you will fall into a loan or debt trap and that will not be an easy situation to figure out. Make sure you avoid any kind of debt trap and keep your way open to new debt opportunities.

What is a debt trap?

Simply put, a trap is a complex situation where you don’t find a solution or way to come out of problems. Similarly, the debt trap is a problematic situation where it becomes difficult for you to handle the situation and come out of it. However, this trap is created all by you, and can’t blame any fortune for this. If you take a loan, and you are not being able to pay it back, you fall into a trap. This is because you again take a loan at a high rate of interest to pay back the previous loan. You don’t have enough sources of funds and you keep borrowing to pay back your past debt.

Reasons why you fall into a debt trap

Borrow wrong: It starts with borrowing and then comes to repayment. If you are not borrowing the right amount, you cannot expect your loan to be a perfect one. You will face problems from the very beginning. You need to consider your ability to pay and what you can borrow, only then do you need to borrow. Depending upon your income, you should borrow. If your debt is more than your income, it is very evident that you end up in a trap. So if you are borrowing more than you can actually repay, you get in default, and then you again borrow to finish off the last debt. So if you are ready to borrow, you should understand your capability and then select a principal amount, tenure, and yes the monthly EMI.

Overspend your money: If you are borrowing you should have enough reason for that. You cannot borrow without any genuine reason. There should be a reason such as some sort of emergency that can meet your needs instantly. You need to meet your entire requirement and use the money in the right manner. If you are wasting money on silly reasons you will soon finish it off. You need to make sure that you are bringing the best reason to spend the money you have borrowed.

Take a new loan to finish the existing loan: If you are looking out for a new personal loan to finish off your existing loan, you are falling into a trap. It will not make your problem less but you will be having more burden than before. Keeping multiple loans and going off for another loan to finish one, can give you stress and will take up the entire peace from your life.

Your debt to income ratio: If you are paying all your income in meeting your EMI, something will get affected for sure. Are your fixed obligations too much? You cannot miss your fixed obligations so you will miss your EMI and go on for a trap. If you are having more than 50% of your income given into debt, you will end up being in a trap. This will only push you to one loan after the other with no good source of funds.

You choose the wrong tenure: If you are choosing the wrong tenure, the effect will not be good. If you have chosen a short-term loan then your EMI monthly will be a high one. You will need to consider various aspects before you go on for a loan. If you are capable of paying a low EMI, you need to go for a long-term loan. Make sure you are choosing your EMI and tenure as per your income.

Wrapping up

Negotiate for the best personal loan interest rates. It will help you with a low burden on EMI and you can manage a low EMI monthly.