Borrow Smart™ | Borrow Smart™
A loan agreement is one of those documents people sign with enormous financial consequences and surprisingly little curiosity.
Why?
Because the loan has already been approved.
The excitement is over.
The money is coming.
So people stop asking questions.
That’s exactly when they should ask more.
Question 1: What is the actual cost?
Don’t stop at the interest rate.
Understand the relevant fees, charges and total repayment obligation.
Question 2: What is the repayment structure?
Know:
- EMI
- tenure
- repayment dates
- interest mechanism
- whether the structure can change
Question 3: What happens if I want to repay early?
Understand the applicable prepayment/foreclosure conditions and charges.
You don’t want to discover the answer when you suddenly have surplus cash.
Question 4: What exactly am I pledging?
If there is collateral:
Know the security.
Understand what happens in case of default.
Don’t treat collateral as a formality.
Question 5: What happens if my income falls?
This is the question almost nobody asks.
Imagine:
income -30%
or
business cash flow -40%
Can the loan still be serviced?
Question 6: What am I actually creating with this money?
This is my favourite question.
Because it brings the entire Borrow Smart™ philosophy together.
If the answer is:
“I don’t know yet.”
Don’t rush.
Question 7: What is my exit strategy?
Every significant borrowing decision should have an exit thought.
Will you:
- repay from business cash flow?
- refinance?
- sell another asset?
- use future income?
- retain the loan long term?
The answer doesn’t have to be perfect.
But it should exist.
The Borrow Smart™ Seven
Before signing, remember:
COST
TENURE
REPAYMENT
COLLATERAL
RISK
PURPOSE
EXIT
Seven questions.
A few minutes of thinking.
Potentially years of financial consequences.
The lesson
A loan agreement should never be treated as a document between:
“The bank” and “me.”
It is a commitment involving:
my income + my assets + my future cash flow + my family/business goals.
Read it accordingly.
And remember the principle with which this series began:
Debt is not the enemy. Bad debt is.
Before you borrow, don’t ask:
“How much can I get?”
Ask:
“What will this money create?”
— Joydeep Bagchi
Borrow Smart™ | Income Beyond Salary
Educational content only. Loan terms, charges and regulatory requirements vary by lender and product. Always read the applicable loan documentation and obtain professional advice where appropriate.
