Are you planning to take a loan before starting out on your own and are wondering what issues you need to handle? Don't worry! We'll help you get started.
Whether you borrow money from a bank or any other source, there is always some amount of risk involved. Hence, you need to know the issues pertaining to loan repayment that are likely to come up. Also, evaluate the risk involved in borrowing. Finally, remember, that several terms are negotiable in a loan agreement.
Mode of repayment: Select a suitable mode and duration for repaying the loan, from the various options that the bank offers. You could pay in equated monthly installments or at a stretch. A longer period of repayment naturally means a higher total payout at the end of the day. On the other hand, if you choose to pre-pay the loan, there may be a penalty.
Interest rates: Although the interest rates charged by all lenders generally lie within a narrow band, it is in your interest to get the best rates possible. Therefore, it is important for you to check with the other lenders before borrowing from one party. If you are not borrowing from a bank, find out whether the terms of the lender comply with the applicable state usury laws.
Interest payment: Make sure that the repayment dates are clearly defined. If you have a choice in the matter, choose to make the payments on the first of every month, when you are likely to have greater funds at your disposal. Alternatively, adjust the timing of the installments in accordance with the cash inflows of your business.
Processing fee: The lender charges this fee once you apply for the loan. Hence, get a couple of estimates of loan packages from different sources, and check these charges against the ones you are to pay. If you find much variation between them, you can surely re-negotiate the terms.
Foreclosure: In case, you plan to close off your loan account before the due date, you can request the lender to provide you with a foreclosure facility. But make sure that the loan agreement includes such a clause. This might safeguard you against or minimize any prepayment penalty.
Default: The loan agreement will also cover the applicable penalties in cases of default. Try to settle these matters with the lender well in advance before any such event occurs.
Grace period: Generally loan repayment agreements come with a grace period. That is to say, if the due date falls on the first of every month, you are not liable for a delay if you make the payment within the next few days.
Late fee: Be sure that the late fee charged by the lender is reasonable.
Use the above pointers while structuring your loan repayment schedule. Books like "An optimal loan repayment plan" will be of great help. You could also log onto and get answers to your queries.
