Loan Tips: Loans can be good and bad! Learn which loans are the secret to your wealth growth..

Nowadays, whether it's buying a house, purchasing a car, funding children's education, or managing an emergency, people increasingly resort to loans. The EMI system has become so simple that most people take loans for every need without thinking. But is every loan beneficial for you? Absolutely not.

There are two types of loans: good loans and bad loans. The only difference is which loan increases your net worth and which becomes a burden on your pocket. Let's understand this in simple terms.

Learn what a good loan is.

A good loan is a loan that helps increase your wealth or net worth. That is, a loan that provides you with returns that exceed the interest.

Identifying a Good Loan

Your net worth increases.

The returns are greater than the interest on the loan.

There is a possibility of increased income in the future.

Asset Creation

Examples of Good Loans
1. Home Loan
A home is an asset. Its value increases over time, and it also offers tax benefits. Therefore, it is considered a good loan.

2. Education Loan
Investment in education increases your future income. Therefore, it falls into the category of good loans.

3. Business Loan
If a business is successful, earnings can increase exponentially. Therefore, a business loan is also considered a good loan.

What is a Bad Loan?
A bad loan is used to spend on consumer goods and does not create wealth. It lightens your pockets, but neither does it create any assets nor does it increase your net worth. On the contrary, the interest burden keeps increasing.

Identifying a Bad Loan
The interest rate is very high. Net worth doesn't increase.
EMIs are heavy on your pocket.
Non-repayment of a loan damages your credit score.

Examples of Bad Loans
1. Auto Loan
The value of a vehicle decreases over time, not increases. Therefore, it is considered a bad loan.

2. Personal Loan
The interest rate on this loan is very high and is often taken without planning.

3. Credit Card Loan
Credit card interest can reach 36% to 48%. This is the most dangerous loan that can drain your pocket.

4. Consumable Loan
Buying mobile phones, TVs, furniture, etc. on loan can harm your financial health.

Keep these things in mind before taking a loan.
1. Prioritize your needs.
First, decide whether the loan is really necessary. Taking loans for every little thing can lead to bad habits.

2. Check your debt-to-income ratio.
Your EMI should only be 30–35% of your income. Above 40% is considered risky.

3. Maintain a good credit score.
Good credit score = low-interest loans.

Above 750: Very good
700–749: Good
650–699: Fair
Below 600: Poor
4. Avoid repeated unsecured loans
Stay away from personal loans and credit card loans.

5. Always repay high-interest loans first
Get rid of loans with high interest rates first.

Smart Borrowing Tips
Pay EMIs on time.
Prepaying the loan at the outset is beneficial.
Understand the effective interest rate of any loan after tax deductions.
Reduce the tenure of long-term loans by slightly increasing the EMI.
Save for small needs, avoid loans.