Having a credit card is a big financial responsibility, right? And taking a loan on top of it is even bigger. So if you want to avoid rejection of SBI business loan application, ensure to avoid these credit card blunders.
Paying only the minimum card dues every month
One of the biggest blunders to avoid when applying for an HDFC business loan is this one. Credit cardholders who are unable to clear their credit card payment in full frequently find an easy way by repaying only the minimum required amount, which is typically five percent of the entire amount that is still outstanding on the card.
One of the most telling signs that one is getting closer to falling into a debt trap is when one begins to get accustomed to or overly comfortable with the idea of repaying only the least amount that is due. The practice of rolling over your credit card debt by paying only the minimum due each month can certainly cost you a lot of money, as the finance charges applied on outstanding dues are typically as high as 47-48 percent per annum. If you only pay the minimum due each month, you are only rolling over your debt.
-Ratio of EMI to income is greater than 50–60 percent when applying for an HDFC business loan
The ratio of your monthly EMI payments to your monthly income is known as the EMI to income ratio. This ratio measures how much of your monthly income goes toward meeting your necessary debt obligations, such as SBI business loan EMIs and credit card bills.
A larger ratio of EMI to income indicates that a significant percentage of your monthly income is being spent on the repayment of fixed commitments. As a result, there is less room for you to manage savings, pay for other bills, or take out another type of credit whenever the need arises.
If a borrower’s monthly SBI business loan instalment payment (EMI) is greater than 50–60 percent of their income, even traditional lenders will typically refuse to lend to them or will do so at significantly increased interest rates. This is due to the perception that the borrower is more likely to default in such circumstances. A large portion of your income is being used on serving repayment of these mandatory debt repayments, so if your EMI to income ratio mostly remains above the level of 50-60 percent, this may well be a sign that you are getting closer to falling into a debt trap because of the amount of money that is being spent.
-Habit of regular cash withdrawals from credit card transactions before submitting an HDFC business loan application
Not only do cash withdrawals made with a credit card include a cash advance fee of up to 2.5 percent of the amount that is withdrawn, but such transactions also attract finance charges beginning on the day that the cash withdrawal is made and continuing until the date that the payback is made.
Making frequent cash withdrawals using your credit card is likely an early warning sign that you are getting closer to falling into a debt trap.
Consider fulfilling your fund requirements by opting for loans that involve quick disbursals, such as personal loans, gold loans, loans against securities, or loans against credit cards. These types of loans typically involve lower interest costs in comparison to the hefty finance charges and fees that are levied on credit card cash withdrawals. You can also go for an HDFC business loan or SBI business loan if you need funds for business-related purposes.
What should you do in this situation if you’ve already made such mistakes?
-Transfer current balance on credit card
Another option for credit card users wanting to take an HDFC business loan but stuck with credit card debt is a balance transfer. This choice provides cardholders with the opportunity to transfer outstanding amounts from one or more of their existing credit cards to a different credit card at lower interest rates (interest rate). This is particularly helpful in the event that the existing card issuer is unable to convert the dues into EMIs or charges a higher interest rate for the transaction.
In most cases, the new card issuer will provide a promotional interest period of between two and six months, during which time the interest rate on balance transferred will be reduced or even waived entirely.
This reduced or zero interest rate helps to slow down or even stop the accrual of financing charges for a brief period, providing the cardholder with a window period during which they can save money and make arrangements for funds to repay the transferred balance.
When the introductory interest-free term comes to an end, the unpaid balance on a balance transfer will begin to accrue the regular finance costs. Additionally, just like you pay EMIs on an SBI business loan, certain card issuers, too, make it possible to convert the transferred sum into EMIs over a period of time that might range anywhere from three months to forty-eight months.
-Get rid of any investments that aren’t producing much income
The interest rates that are applicable to fixed income instruments such as bank deposits, debt funds, bonds, and so on are significantly lower than the finance charges that are applied to outstanding credit card balances.
Those who are drowning in credit card debt would benefit financially from liquidating investments with low yields and applying the funds toward paying off their outstanding credit card obligations. However, while you are doing this, you should not touch any of the funds that are designated for your short-term or emergency goals.
-Utilize the power of leveraging with your long-term investments
Rather than liquidating long-term financial investments like mutual funds, use them as collateral to obtain a loan against securities because the interest rates on such loans are far cheaper than the finance costs that are associated with credit cards. If you take out a loan against securities, you will be able to acquire funds at low-interest rates, which you can then use to pay off your high-interest credit card debt without having to give up any of your long-term financial goals.
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