Everybody wants to take the loan for some or other purpose, but the concern of total cost is always there. However, not always loan policies are responsible for that. Our financial factors too play a decisive role and affect the overall cost of a loan.

Here are several factors that you should not forget to consider as they can affect the amount you payback.

 Bad credit score  

Of course, the world knows its impact, and the lenders always act reluctant while processing a loan application with a poor rating. The bad credit scorers get a higher rate of interest despite customisation. The lending companies do not want to take much risk on such applicants. They keep the rates high to compensate for the possibilities of risk.

Small income

 Maybe your credit score is good, but the salary is quite low. In that case, the loan lender restricts the loan amount on a specific limit. It is easy to understand that with a small income, a person has to manage many other expenses. With a new payment in the form of loan instalments, he/she may miss repaying on time. The other person with good income pays the same rate but borrows more money. On the other hand, you are paying the same interest rate for a smaller amount.

Domination of expenses in the income-outgoing ratio

The rule of this ratio is applicable in all types of loans. Whether you are applying for the quick short term loans or mortgage, the income-outgoing balance is necessary. Usually, the idol ratio is 70:30; however some lenders also accept 60:40 ratio. It means if the ratio is seventy: thirty in your income, 70% should be income, and 30% should be expenses part. If the latter dominates your income, then the lender gives a loan on higher cost.

Multiple search footprints due to multiple applications to many lenders

 Sending loan requests to many lenders at the same time leaves search footprints. The credit check performed by the various lending companies shows on the credit records. This shows the applicant as credit hungry, and the lenders hesitate to approve the loan. They think that the person is in desperate need of funds and thus may be going through an intense financial crisis. As a result, missed repayments may happen. Even if they approve, they find it safer to provide funds at a higher rate. This, in turn, increases the total cost of the loan.

Long tenure

We all want to take the loan for longer tenure as it decreases the amount of monthly instalments. However, this, in turn, increases the total cost of the loan. A person with a loan tenure of 25 years will pay more as compared to the person with a smaller tenure. However, if the borrower with the prolonged tenure makes big part payments in the initial months or years, the total cost can reduce. If next time you apply for a loan then think twice before you demand a longer tenure. It is going to be more expensive in its total cost as compared to small loan duration. 


Keep the above points in mind to find a more affordable deal next time. Your circumstances become the decisive factors and affect the overall cost. The decision on a loan should be rational. Mostly we think of the short-term benefits, but it is not a correct approach. Due to lack of knowledge and financial literacy, our decisions remain incomplete. Later, when any loss happens, we realise the gap between our perception and reality.

Now, before any delay happens, go through the above points and try to make a smart and rational decision on loan. ALL THE BEST.


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