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Why and How to Make a Budget? Important reasons and tips

Knowing how to prepare a budget is one of the essential life skills that can help you manage your finances. Budgeting allows you to spend your income to meet all your needs effectively. Moreover, a proper budget helps you to cut unnecessary costs and save more to secure your financial future.

Read on to learn why budgeting is important, how to make a customised budget and tips for smart budgeting.

Top 5 Reasons to Have a Budget

Here are some reasons why you should prepare a budget in the first place:

Ensure You Spend Within Your Income

It is crucial that you differentiate between necessary and luxury expenses. This is also the foremost stepping stone to managing a budget. This information can help you limit costs and ensure you don’t spend beyond your means.

Save For Retirement

It helps to determine exactly how much you need to put towards your retirement fund. By smartly investing your salary and savings, you can secure your golden years with a suitable corpus.

Achieve Your Goals

A budget provides insight into whether you have surplus money to put towards long- and short-term goals. You can also understand how much you can direct towards creating a fund for emergencies as well.

Avoid Bad Spending Habits

You can review your budget to know if your money is going towards too many luxury or impulse purchases. After rethinking your spending habits, you can put the money towards instruments that secure your financial growth instead.

Improve Financial Health

Budgets offer perspective, which can help you control your finances better. In fact, it can improve your lifestyle in the long run by enabling you to:

Build a substantial contingency fund
Prepare for significant future expenses, such as children’s education, weddings, etc.
Secure financial growth

Steps to Create a Good Budget

The first step is understanding your goals and why you are creating this budget. If you’ve ever wondered, ‘How do I make a budget?’ follow these guidelines.

Step 1: Calculate Your Net Income

Firstly, know your total monthly earnings from all sources, including:

Salary
Investment returns
Rental earnings, etc.

Step 2: Calculate Your Monthly Expenses

Knowing how much you spend is a crucial aspect of an adequate budget. This is because it will help determine if you have room for savings or are exhausting your income.

Step 3: Track Your Spending

After calculating your inflow and outflow, you must check if you’re making any unnecessary purchases. Ideally, you should monitor your income and expenses for a few months to better understand your spending habits.

Step 4: Choose a Budgeting Method

Once you have analysed everything, you must decide on an approach. A popular tactic is the 50/30/20 method, where:

50% goes towards necessities
30% goes towards wants
20% goes towards savings

However, you can decide on any ratio or method based on your financial obligations.

Step 5: Make Adjustments to Stick to Your Budget

After doing all the required calculations, you can adjust your expenses based on your lifestyle. Note that keeping your budget flexible is essential, as an overly strict plan may diminish your quality of life or make it hard to stay consistent.

Tips to Stick to Your Budget

Here are some practical tips to help you meet your goals:

Make your budget before the month starts so you can plan expenses as early as possible
Include family members to get a clear picture of all the expenses and spends
Prioritise debt payment over luxury, big-ticket purchases
Avoid making impulse purchases
Use online budgeting apps to make the process easier
Opt for auto-pay to avoid delays and additional burden of late payment charges
Keep track of your progress and adjust the budget periodically
Limit the use of credit cards to keep your expenses manageable
If possible, repay your high-interest loans first to save more

With these tips, it’s easy to prepare and manage a budget to meet your goals and save more money for the future. However, there may be a situation when you may need urgent funds and you may not have sufficient cash. In such cases, the Fibe Instant Personal Loan can help.

You can easily get a loan of up to ₹5 lakhs for any financial requirements. Furthermore, with a flexible tenure of up to 36 months, you can repay comfortably per your budget. Download our Personal Loan App or visit our website to apply online!

FAQs on Why and How to Make a Budget

Do you really need a budget?

Having a budget simplifies your money management and allows for realistic adjustments. Thus, you must have a budget to better control your earnings and day-to-day expenses. This also helps you save efficiently and achieve goals.

What are the purposes of budgeting?

A budget can help you better manage your income and spending in the following ways:

Avoid unnecessary purchases
Pay bills on time and in full
Save for your retirement
Invest in your goals
Create a fund for emergencies

Can budgeting help me get out of debt faster?

Yes, budgeting can help you pay off your debt faster by helping you manage your finances better. By tracking your income and expenses, you can create a debt repayment strategy with more allocation towards repayment.

How do I set realistic financial goals when budgeting?

Here are some tips that can help you create and manage a budget realistically:

Understand your current financial situation
Break down your goals according to priority
Create a detailed plan based on your goals
Use the SMART framework by ensuring your budget is specific, measurable, achievable, realistic and time-bound

Know How to Get Personal Loan and Home Loan Simultaneously

Getting a personal loan and a home loan at the same time is possible to manage your requirements. Whether you want to purchase your dream home or renovate your existing one, you can do it easily. All you have to do is get a personal loan after a home loan to extend your budget.

Now that you have an answer to your question, ‘Can I take a personal loan after a home loan,’ here are a few easy-to-follow strategies you can follow.

Tips to Get a Personal Loan and a Home Loan Together

Follow these ways and get a personal loan and a home loan simultaneously:

Maintain a High Credit Score

The reason why lenders hesitate to approve your second loan application is due to the risk of default. However, a sure-shot way to tackle this is by maintaining an excellent credit score. Wondering what a credit score is? Simply put, it’s a 3-digit numerical summary of your credit behaviour.

A higher score indicates creditworthiness and implies that you are a responsible borrower. This allows you to get hassle-free approval. Your score is calculated based on the following parameters:

Your past repayment behaviour
Your existing and past credit accounts
Inquiries into your credit history
Duration of your existing and past credit accounts

In addition to your credit score, lenders also consider these factors:

Your age and residence
Your income and employment
Your credit utilisation ratio
Your debt-to-income ratio
Your collateral, if applicable

Assess Your Finances and Requirements

While it’s possible to opt for a second loan, remember that it can be quite taxing on your finances. This is because you need to repay two loans instead of one.

In simple words, you need to pay two sets of EMIs every month, which can be difficult to handle. But you can manage them by following these tips:

Assess your income from all the sources and your financial standing
Avoid a second loan if your DTI (Debt-to-Income) ratio is high
Opt for terms that you can afford to repay

Apply with a Co-Applicant or a Guarantor

Another smart strategy is to add a co-applicant or a guarantor. This helps you get easy approval; however, make sure the co-applicant has an excellent score. In case you fail to repay the loan, your loan will be repaid by the guarantor or co-applicant.

The chances of approval on your second loan increase significantly as the risk for the lender reduces. Ensure that these individuals possess the following:

A favourable credit report and a high credit score
No history of defaults for loans or credit cards
A stable income and employment
A low credit utilisation ratio
A low debt-to-income ratio

Also Read: What Is a Co-Application for a Loan

Choose a Suitable Repayment Tenure

The tenure plays a critical factor when applying for any type of credit. This is because it helps you manage loan repayment seamlessly. Another reason is that the timeline you choose influences the EMI you need to pay.

While selecting a suitable tenure, consider the following parameters:

Assess your monthly expenses to check your affordability
Opt for a shorter tenure if you wish to repay your loan earlier
If you want to pay smaller EMI amounts, a longer tenure is ideal

Keep Your DTI Ratio Low

What is DTI? Simply put, this is your Debt-to-Income ratio, which is an indication of your debts in relation to the total income you earn. Maintaining a low debt-to-income ratio can be helpful when opting for a second loan.

Here’s a quick gist of what you need to know about DTI:

A low DTI ratio shows a strong financial standing since the amount you spend towards your debt repayments is lower.
A DTI ratio of less than 35% is considered ideal, and the chances of approval on your loan applications are better.

When is Getting a Personal Loan and a Home Loan Together Ideal?

With an answer to the question, ‘Can I take a home loan and a personal loan simultaneously,’ you can make the right choice considering the pros and cons. Here are a few instances when it’s a smart decision:

If you need funds to make a down payment for your home
If you require additional funds to renovate your existing home

Planning your loan application process properly and choosing the right lender is important to protect your financial health. One such lender to rely on for an Instant Loan is Fibe. We offer up to ₹5 lakhs at affordable rates. You can get the required funding with flexible repayment plans and no hidden costs. Get started by simply downloading our Instant Loan App or applying directly through our website to apply for a loan today.

FAQs on Availing a Personal Loan and Home Loan Simultaneously

Can a person have two loans at the same time?

Yes, there are no restrictions on getting more than one form of credit simultaneously. However, ensure the following parameters:

Maintaining a spotless credit history
Being able to manage the repayment effortlessly

Can you get a personal loan if you already have a home loan?

Yes, it is possible to apply a personal loan, even if you’ve applied for a home loan. At Fibe, you get to enjoy the following benefits when you opt for a personal loan:

Ample funding of up to ₹5 lakhs
Affordable rates
Flexible repayment options
Minimal documentation

Does personal loan impact home loan?

No, getting a personal loan doesn’t impact your existing housing loan directly. However, if you don’t manage repayment properly, getting another loan can increase your financial burden.

8 Reasons Why a Personal Loan is Better Than Taking a Loan From Friend or Family

Asking for a loan from a friend or family may seem like a quick and easy option to get funds. However, involving your family or friends in your financial situation may cause awkwardness or strain your relationships. So, it is best to keep relationships and monetary affairs separate.

Instead, you can opt for one of the many alternative solutions offered by a majority of financial institutions. One of these is a personal loan, through which you can comfortably get funds without risking your relationships.

Read on to learn why you should opt for a personal loan instead of borrowing from your friend or family member.

Limited Funding

As per your eligibility, banks and NBFCs can offer loans of up to ₹5 lakhs and more. However, you cannot be sure that your friends and family have the same quantum of funds available to lend to you.

Strain on Relationship

In the event that you can’t repay the amount on the promised date, complications can arise within the relationship. Money-related problems can often devolve into strife, arguments, and other such issues, which can be avoided with a loan from an institution.

Ambiguity in the Terms

If you borrow from a friend or family member, verbal communication can create confusion, leading to conflict. However, borrowing from a lender, the loan terms and conditions are transparent from the get-go.

No Monitoring of Fund Use

If you take a loan from a lender, you can use the funds without restrictions. On the other hand, you may feel obligated to inform your relatives or friends about your financial plans if you borrow from them.

Repay with Easy EMIs

When your family or friends lend you money, there may not be a fixed repayment plan. The lack of structure and details can lead to stress on your finances and relationships. On the other hand, borrowing from a lender means you have to stick to a schedule. Generally, you pay off the loan in monthly instalments, which helps avoid any undue financial burden.

Also Read: 5 Ways to Repay a Loan at Ease

No Impact on Credit History

When you borrow from someone you know and repay it on time, there is no impact on your creditworthiness. On the other hand, repaying the lender on time helps build a repayment track record. This boosts your score and can help you get an affordable loan in the future without any hassle.

Tips to Choose the Right Personal Loan

Keep the following points in mind to pick the right option:

Compare multiple interest rates to choose the most affordable option
Check the online reviews and testimonies to assess the reliability of the lender
Confirm that you meet the lender’s eligibility criteria to improve the chances of approval
Check all the fees and charges levied by the lender to keep costs in check
Choose the most suitable tenure to enjoy manageable EMIs
Use an EMI calculator to find a comfortable repayment plan
Read all the terms and conditions carefully before accepting the loan offer

With thorough research and these tips, you can easily choose an ideal lender to enjoy stress-free borrowing. Fibe is among the leading lenders offering funding of up to ₹5 lakhs instantly and at affordable rates.

The Fibe Instant Cash Loan comes with no end-use restrictions and no pre-closure charges. Furthermore, you can enjoy flexible tenure options from 3 to 36 months, minimum paperwork, rapid disbursals, easy online loan tracking and more.

Download the Online Loan App from the Google Play Store or Apple Store or visit our website to apply from the comfort of your home!

FAQ on Loan From a Friend or Family

What are the disadvantages of obtaining a loan from a friend or a family member?

Here are some of the drawbacks you should know:

Lack of clarity in loan terms can hurt your relationship
Involving a relative in your personal finances can make things awkward
Conflicts can arise and add stress in instances of non-payment
You don’t have a structured repayment plan and may have to repay in a lump sum

Why is a personal loan better?

Here are some of the key advantages of getting a personal loan:

You get a lump sum funds for all big-ticket purchases and urgent requirements
It is quick and easy and requires minimal paperwork
It does not require collateral and comes at affordable rates
It allows you to use the funds as you like, with no restriction or justification required
It has a comfortable tenure option to manage your repayment

7 Easy Steps to Be Financially Healthy

Saving money with some planning is easy but being financially healthy involves more than that. It includes building funds for emergencies, investing for better growth, avoiding spending beyond your means and more.

However, everyone has different goals and preferences. As such, there is no one-size-fits-all solution that answers the question of how to stay financially healthy. Nevertheless, there are some tips and tricks that can help you get there. Some of these are listed below:

Follow Monthly Budget

Budgeting your income and monthly expenses is the first step towards improving your financial health. There are numerous methods, of which 50 / 30 / 20 is one of the most widely followed. According to this method:

50% of your income is fixed for your needs, such as bills, rent EMI, grocery shopping, etc.
30% of your income goes towards your wants, such as dining expenses, shopping, travel, entertainment, etc.
20% of your monthly income is for savings and investments

You can choose a different approach or adjust the ratios according to your income and expenses. This will help follow the budget easier and allow you to secure your financial well-being.

Increase Your Income

Rather than cutting back your costs to save more, you can work towards increasing your cash inflow. This will help you finance not just your needs but also your wants. To do this, you can:

Ensure you’re being paid fairly at work
Ask for a raise from your employer
Start a side hustle
Create a passive income source

Create an Emergency Fund

This is among the most recommended methods to prioritise your financial future. Ideally, you should build a corpus that can cover your expenses for 2-3 months in case of income loss. You can easily start with a savings account and add to it regularly.

Also Read: Tips to Make Smart Financial Decisions

Monitor Your Credit Health

Poor credit score can limit your access to financial services, which can negatively affect your overall financial health. Given this, you must regularly track your creditworthiness and take the necessary steps to improve it. Some common reasons for a low score include:

Unpaid or late payment on credit card bills or EMIs
Errors in the credit report
High credit utilisation ratio
Low credit limit
Low credit history
Too many credit cards, etc.

Spend Wisely

In the age of instant gratification, you may want to make purchases without thinking twice. However, you must resist the temptation to avoid unnecessary expenses and put the money towards better use.

One way to ensure you do this is to track and analyse your spending habits. Also, remember that you can give in to your wants sometimes, but make sure you don’t overspend.

Reduce Your Debt

While thinking about savings and investments, you must also think about how you can lower your borrowings. This will help ensure you don’t end up using what you accumulate during repayment. If you have multiple loans, you can opt for a personal loan and consolidate your repayment to streamline payments, all while saving on interest.

Invest Wisely

Based on your income and financial obligations, you can start investing in any scheme that suits your goals. An ideal investment should help you accumulate the required corpus in a given period. You should also diversify your investment to mitigate the risks and protect your finances.

Becoming financially healthy requires discipline and keeping close tabs on your spending habits. If you need funds to get started on your journey to secure your financial well-being, you can rely on the Fibe Online Personal Loan. You can get up to ₹5 lakhs at rates starting at just 2% per month for a flexible tenure of 3 to 36 months. This will help you pay in comfortable EMIs that meet your budget.

The funding also comes with no end-use restrictions so you use it for investment, paying tuition, or any other goal. What’s more, you can also foreclose the loan without additional charges. Download the Personal Loan App or register on our website to start the application process with minimal requirements!

FAQs on Financial Health

How can I have good financial health?

To be financially healthy, try these easy and simple tips:

Build an emergency fund
Avoid overspending
Begin investments as per your goals
Avoid relying on credit unless necessary
Cut on unnecessary expenses

What are ways to strengthen your financial future?

Here are some of the tips you can try:

Budget your expenses
Pay your bills on time
Get insurance for yourself and your family
Build emergency funds
Invest with your goal and finances in mind

7 Useful Tips to Build a Strong Financial Future

Money management is crucial in helping you tackle uncertainties. Becoming financially disciplined is a gradual process that requires efficient planning.

As the saying goes, the sooner you learn how to manage money, the better you become at handling finances and building wealth. Having a solid grip on your finances is the best way to address your day-to-day expenses effectively, take advantage of new opportunities and handle unexpected emergencies.

So, if you are looking to enjoy your finances better, here is an overview of money management and some tips on managing your finances in a better way.

What is Financial Management?

Personal financial management simply means managing your resources strategically. This supports in helping you tackle your daily expenses effectively, achieving significant goals, saving for your retirement and much more.

Here are the main components of financial management:

Income
Saving
Spending
Investing

Key Tips for Managing Your Finances Better

Here are some strategies that can help manage your personal finances better:

Establish Your Financial Goals

The first step towards financial planning is to determine your goals. It is essential to understand your personal finance goals and be clear about them. List out your major expenditures such as house purchase, wedding, children’s education, etc. and prioritise these goals.

Follow the golden financial tip of not letting your expenses exceed the total income you receive and make sure to track your spends as well. Then, make a list of what you are saving for and prioritise accordingly.

If you have already started saving, map your progress and start investing to build your wealth efficiently. If you face a sudden dip, analyse the reasons and learn to combat them. While this doesn’t mean that you re-establish your financial goals, you may have to get better at budgeting.

Always plan specific, measurable, realistic and time-bound goals so that it becomes easy to achieve them.

Plan Your Retirement Funds

It is important to work towards building retirement funds in advance. For specific retirement goals, you may have to increase your savings and investment and let the interest generate more earnings for you.

However, certain factors can restrict your ability to save or accumulate enough retirement funds. For instance, the total amount you can save depends on the age at which you begin making contributions and the type of retirement account you have.

Setting aside even a tiny sum regularly can help build a substantial amount gradually, which is a cushion in emergencies, such as job losses, medical emergencies and many more.

Pay Off Credit Card Debts

Being overly dependent on credit can harm your financial wellness. Using credit cards judiciously should be the goal in your journey towards financial growth. This is because it can be easy to lose track of the money you spend while swiping the card.

Follow the magical 30-day rule that asks you to wait a month before spending on luxurious items. To clear your dues with ease, follow these four pointers:

Check your credit card bill outstanding regularly
Minimise your debt burden by using cash wherever possible
Review prevailing interest rates
Strategise a prudent debt management strategy after analysing all the factors

To come up with the best route to clearing your dues, consider the opportunity cost. If there are ways to reduce your interest outgo with debt consolidation instruments, you should consider them.

Prepare for Taxes Early

Tax planning is an important advice in terms of money management that you should follow to secure sound financial health. Not only does it minimise tax liabilities, but it can also help you plan your investments in a better way. Gathering tax receipts, determining reductions and income proof as well as opting for tax consultation to avoid the last-minute hustle helps you get quick refunds.

This also gives you ample time to discuss any discrepancies with the authorities before it becomes too late. You can optimise your tax efficiency by making the most of allowable deductions for contributions to retirement savings before the financial year ends.

Invest in a Diversified Portfolio

‘Not keeping all your eggs in a single basket’, is a crucial piece of financial advice that can help manage your personal finances better. A number of investment instruments, such as equity markets, mutual funds, fixed deposits, annuities, real estate, etc. are flooding the market.

You can invest your corpus in an investment avenue that best aligns with your financial goals. However, consistency plays a key role in this. Being consistent and careful with your investments can help you accumulate wealth easily. Remember, this is one of the most important tips for managing money.

However, remember that as you near retirement, the weight of equity investments can change. It is vital to have thorough knowledge before investing in market-linked plans. Choose the best investment option to grow your funds securely and reliably.

Secure Your and Your Loved Ones’ Health

Sound financial advice from experts and wealth planners may lead you to pick options such as health and term insurance. Comprehensive coverage not only protects you against unexpected risks but also covers your medical treatment costs.

While you can enjoy tax benefits, the comprehensive coverage safeguards your wealth from a significant dip in times of crisis. This is a strategic approach towards becoming financially disciplined. However, analyse the term and health insurance plans thoroughly to understand their features before investing in a specific plan.

Create a Financial Safety Net

It is important to build an emergency fund to help you sail through challenging financial situations. The easiest way is to create realistic short-term saving goals and contribute on a monthly basis.

Ideally, you should divert these funds into a separate account. As you slowly progress, these emergency funds can come in handy to help you achieve your financial goals.

You can get financial advice from many sources, and it helps to consider all options while also seeking expert guidance. Assess what’s best for you and allocate money in a way that allows you to enjoy value.

Unexpected financial obligations can knock on your doors anytime, even if you manage your personal finances effectively. In such cases, consider getting an Instant Personal Loan from Fibe and handle expenses hassle-free! Download the Instant Loan App here to get the funds, or apply via the website.

FAQs on Top Financial Tips to Handle Your Finances Better

What is the 50/30/20 rule for managing money?

The 50/30/20 budget rule is a great strategy for effective money management. According to this rule, here’s how you need to allocate your funds:

50% of your funds toward needs
30% of your funds toward wants
20% of your funds toward savings

What is the best way to manage money?

Here are some tips for managing money better:

Monitor your expenditures regularly
Develop a realistic budget
Accumulate savings gradually
Develop a smart strategy for investment
Ensure timely payment of bills each month
Cut down on recurring expenses where possible
Set aside funds for significant requirements
Start saving for retirement early

How do you manage money at home?

To manage your money wisely, follow these strategies:

Use the 50/30/20 budget rule
Assess your finances and create a budget
Reduce unnecessary expenses
Prioritise paying your utility bills on time
Keep a fund for emergencies

What Are Emergency Funds? Know its meaning, how to build & when to use

Having an answer to the question, “What are emergency funds?”, is important for anyone looking to plan their finances effectively. Simply put, these are a source of funds that you dip into during emergencies and unexpected situations. Irrespective of how well you budget and save, these situations can cause financial instability.

So, building such cash reserves and knowing when to use them is necessary. While it may sound simple, building your emergency fund reserves involves more than merely depositing a fixed sum of money in your savings account. You must carefully strategise to ensure that your savings do not get eroded due to inflation.

Read on for helpful insights and tips.

What is an Emergency Fund?

Simply put, this is a savings cushion that you set aside for unexpected financial situations. You use these funds strictly when dealing with a crisis and not for regular expenditures. This way, you can avoid debt traps or stress about arranging funds during tough times.

There isn’t a standardised amount for an emergency fund, but there are a few strategies that can help. For one, financial experts suggest that you should put aside at least an amount that can cover 6 months’ worth of expenses. So, you must customise it after analysing all vital factors, such as your monthly income, expenses and debt obligations.

Here are some key facts you must know when planning to build an emergency fund.

Set the right target amount and monthly contribution amount
Find an instrument that is liquid and stable to invest in
Build separate funds for long-term and short-term crises
Do not use these funds for impulse purchases

Also Read: Need ₹1 Lacs Emergency Loan Urgently?

When to Use Your Emergency Fund?

Here are a few situations that you can handle with your rainy-day fund.

Income Reduction or Job Loss

In instances where you are no longer employed or your income decreases, having an emergency fund will come in handy. Be it to cover your bills or pay for day-to-day expenses, it relieves the pressure. It allows you to focus on recovering without worrying about money for a few months.

Medical Emergency

Medical emergencies such as accidents, critical illness diagnoses and treatments, etc., can be very expensive. So, you must have a financial backup plan to manage your bills. In addition to this fund, make sure to invest in insurance as well.

Urgent Home Repairs

Damages to your home or certain appliances can occur at any time and you may not always have the savings to deal with it. While you can take on debt, this isn’t an option for everyone. This is where an emergency fund can help, as you can address immediate issues with the home, without disrupting your budget.

Post-accident Car Repairs

Car accidents are quite common and repairing damages due to a collision or a breakdown is expensive. You can rely on your emergency funds in case of car damage due to an accident or other reasons.

Unexpected Travel

You can also use your emergency fund to cover immediate yet necessary travel expenses. However, you must not use it for vacation, as it isn’t a crisis.

How to Build an Emergency Fund

Follow these steps to create an effective emergency fund.

Step 1: Calculate your net income and expenses
Step 2: Plan your fund amount
Step 3: Create a monthly savings goal
Step 4: Choose the right investment option
Step 5: Automate your contributions
Step 6: Use the allocated funds only during times of crisis and continue contributions for as long as needed

In addition, you must monitor your funds regularly and adjust your goals based on your lifestyle changes. This way, you can ensure that your funds are secure and sufficient. In instances where you need urgent financing and you are still working on your emergency fund, opt for a Fibe Instant Personal Loan. With a loan of up to ₹5 lakhs, you can handle any urgent expenses that come up.

This loan comes with affordable interest rates and a flexible repayment plan, ensuring it fits your budget. Moreover, you can apply with minimum documents from the comfort of your home and even pre-close the loan without any additional charges. Download our Personal Loan App or go to our website to apply now.

FAQs on Emergency Funds

What should I do after I have an emergency fund?

In case you have additional money available after building an emergency fund, here are some ways you can use it:

Settle your existing debts
Invest in retirement options
Create an education fund for your children
Create a fund for vacations
Use the fund for home renovation
Invest it

How much money do I need for an emergency fund?

Ideally, you should have six months of basic living expenses and payable dues in your emergency fund.

Is ₹1 lakh enough for an emergency fund?

Since you should ideally have 6 months of expenses in the fund, ₹1 lakh would only suffice if your monthly expense is ₹16,666 or less.

Why Personal Loan Interest Rate is High? Here’s what you need to know

Personal Loan Interest Rate Is Higher Than Other Loans

The personal loan interest rate average varies depending on the lenders. However, generally, these rates are higher than secured and other credit options. There are several reasons for this disparity and understanding the reason for it will help you make informed decisions.

So, read on to learn why a personal loan interest rate is high and more.

Why are Personal Loan Interest Rates Higher?

Loans are generally categorised are unsecured and secured. With the latter, you pledge an asset as collateral to get the required funding. However, unsecured loans don’t require collateral.

Lenders request collateral as a security measure that can help them recover the loan amount if the borrower defaults. As such, their risk of lending to you is lower, allowing them to offer lower rates.

However, if the loan is not backed by collateral, the risk is higher and lenders make up for it by levying a higher interest. Since personal loans come under this category, they can have a higher interest rate than other types of loans.

Also Read: Interest Rates on Personal Loans in India 2024

Factors Affecting Your Personal Loan Interest Rate

Here are some other possible reasons why a personal loan interest rate is high:

Your Income

All lenders have different parameters for minimum income, which helps them manage their risk and ensure repayment. If the applicant’s income is low, lenders usually levy a higher rate to offset the risk.

Income Stability

The stability of an applicant’s income implies whether or not there is a consistent inflow of cash. As such, lenders generally offer lower rates to a salaried applicant with a long employment history. However, if you have swapped jobs several times in the last few years or have recently joined a new company, the rate you get may be higher.

Debt-To-Income (DTI) Ratio

Higher existing debt will reduce your chances of getting affordable rates. This is because too many ongoing loans raise your financial burden, which increases the risk of default. To offset this, lenders charge higher interest rates.

Your Credit Score

Since it determines your creditworthiness, lenders rely on this metric to assess their risk of offering you a loan. A good score implies a higher possibility of repayment and therefore, can result in lower interest rates and vice-versa.

Loan Tenure

Interest rates and loan tenure have inverse relationships, so with lengthy tenure, the rates increase. This is because, when you opt for a longer tenure, the risk for the lender can be higher and vice-versa.

Relationship With the Lender

Some lenders offer their existing customers lower rates provided they have a good repayment history. In some cases, these are exclusive offers to reward customer loyalty.

Economic Climate

This is a critical factor as the rates offered are often linked to the repo rate set by the RBI. If the repo rate rises, the cost of borrowing increases and vice-versa. Additionally, a lender’s internal policy affects the range of interest rates they can offer to any applicant. This is also why the rate differs from one lender to another.

Although personal loans can have higher rates, they are a popular instrument and there are ways to enjoy lower rates. Here are some tips you can try:

Work to improve your credit score before applying
Maintain a good repayment history without any defaults
Compare multiple lenders’ interest rates before applying
Leverage your high-drawn salary or steady employment history
Opt for tenure with a lower rate but ensure EMI is within your budget
Avoid applying for multiple lenders in a short duration
Apply with an existing lender

These tips will get you a personal loan at a lower interest rate and help you negotiate comfortable repayment terms. It also helps to apply with the right lender, and one option to consider is the Fibe Instant Cash Loan. Get up to ₹5 lakhs with interest starting at 2% per month and repay affordably.

You can also choose a comfortable tenure of up to 36 months and prepay your loans without any charges. What’s more, with a 100% digital application, you can comfortably apply from your home and upload minimal documentation to get funds in minutes. Download our Instant Loan App or register on our website to get started.

FAQs on Higher Interest Rates on Personal Loans

Why is interest on personal loans high?

These loans are unsecured and therefore, not backed by any collateral. This increases the lender’s risk, which they offset by levying higher rates.

Which type of loan has the highest interest rates?

Generally, unsecured loans have higher rates. These can include:

Personal loans
Student loans
Credit cards
Short-term business loan

Neo Bank Vs Traditional Bank: All you need to know

Comparing the services, benefits and other features of a neo bank vs a traditional bank is crucial to choosing the right option. While both these institutions offer similar financial services, there are significant differences in how they operate. A traditional bank may be suitable for one person but will not be that convenient for another individual and vice-versa.

What is a Traditional Bank?

Traditional banks refer to financial institutions that offer banking and non-banking facilities through physical branches. These banks are generally established for a long time and have branches in various towns and cities. They offer facilities such as:

Bank accounts
Locker facilities
Money transfer services
Loans and investments
Credit cards
Cash withdrawals through ATMs

What is a Neo Bank?

Neo banks have emerged as a new type of financial institution that operates through the online mode only. These banks don’t have offline branches. Compared to traditional banks, they offer more flexibility and affordability and are quicker. They offer services like:

Bank accounts
Credit cards
Loans and investments
Money transfer services

Neo Bank Vs Traditional Bank

Refer to this table to know how these institutions differ:

Parameter	Traditional Banks	Neo Banks
Availability	Offer services through physical branches and via apps and portals	Offer financial and banking services in the online mode only
Demand	Comparatively more popular due to the physical presence	This is a new mode of banking, with a slowly rising demand
Services Offered	Bank accountsLocker facilitiesCredit cardsMoney transfer servicesLoans and investmentsRelationship managersATMs	Bank accountsLoans and investmentsMoney transfer servicesCredit cardsRelationship managers
Banking Licence	Have appropriate banking licences since they are regulated by the Reserve Bank of India (RBI)	Not directly regulated by the Reserve Bank of India (RBI) and may not have all the banking licences
Fees and Charges	Higher interest rates and additional fees and charges	Comparatively lower interest rates and other associated charges
Customer Service	Offline as well as online customer services	Only online customer service

Pros and Cons of a Traditional Bank

Here are some benefits that you need to be aware of when comparing a neo bank vs a traditional bank:

These banks are popular due to their longer standing and high accessibility.
You enjoy a wide range of banking and non-banking products and services.
Traditional banks offer more security as they are regulated by the Reserve Bank of India (RBI).
Most traditional banks have branches in various cities and towns to offer easy accessibility to customers across the country.
Traditional banks emphasise long-lasting customer relationships and offer online and offline customer service facilities.

Check out some limitations:

Traditional banks levy a higher interest rate and other fees and charges than digital banks.
Availing of banking and non-banking services involves more time and effort, as you need to visit the bank’s branch physically in certain instances.
Traditional banks may not offer the latest technology or features either due to the cost of adoption or regulatory restrictions.
They are generally less flexible as compared to neo banks.

Also Read: What is WhatsApp Banking and How to Use?

Pros and Cons of a Neo Bank

Neo banks offer these benefits:

They provide easy-to-use platforms for banking and non-banking services.
They upgrade their technology regularly to offer the latest features and facilities and offer a seamless experience to customers.
They are more affordable than traditional banks.
They offer 24×7 access to banking and non-banking services.
They facilitate faster services due to their online operations and fewer formalities.

Here are some limitations you need to know when analysing the features of a neo bank vs a traditional bank:

Neo banks face regulatory challenges since they are fairly new to the ecosystem and generally have issues getting licenced by the RBI.
They rely heavily on technology to operate since they only work on an online model and don’t have offline branches.
These banks may face a shortage of funds due to a lesser customer base than traditional banks.
Older members of the customer base may find it harder to opt in for newer features
Neo banks face high competition with traditional banks because of their popularity and high customer base.

If you decide that online solutions are more suitable for you, there are many options. For one, an Instant Personal Loan from Fibe is a great way to get funding. With a loan of up to ₹5 lakhs, you don’t have to worry about high-interest rates or hidden charges. So, install our Instant Loan App to get the funds or apply directly through our website.

FAQs on Differences Between a Traditional Bank and a Neo Bank

Is a neo bank a fintech?

Yes, a neo bank is a type of fintech offering financial services online. They offer:

Savings and checking bank accounts
Payment and money transfer services
Financial education tools, like budgeting apps

What is the difference between a neo bank and a digital bank?

Here’s how these banks differ:

Neo banks are completely digital, while traditional banks have branches as well as provide digital services.
Neo banks come with lower fees and charges as compared to traditional banks.
Traditional banks offer more services and facilities than neo banks.
Traditional banks have licences from the RBI, whereas only a few neo banks have licences.

BNPL vs Credit Card: Which One Is a Better Option?

Every time you are in the market to buy something, you will find a better and more convenient way to pay for it. Buy-now-pay-later options and credit cards help you shop without hurting your wallet or monthly budget, especially if you plan to make a significant purchase. As such, knowing their features helps you to make an informed decision.

What is Buy Now, Pay Later (BNPL)?

BNPL cards offer credit facilities similar to an instalment loan, which you can use to shop first and pay later. You repay the amount you have spent via EMIs in the subsequent months. Simply put, you can buy anything with BNPL to settle the billing amount with pre-approved credit.

Most platforms, including third-party financial companies, are now offering a BNPL facility. Some of them are:

Amazon Pay Later
Flipkart Pay Later
ICICI Pay later
HDFC Pay Later
PayTM Postpaid
LazyPay
Ola Money Postpaid
ZestMoney
Simpl

What is a Credit Card?

A credit card is another great way to shop when you don’t have funds immediately available without affecting your savings much. Paying for a huge purchase in one go can exceed your monthly budget. Using a credit card can help you pay for the product in monthly instalments via credit card EMIs.

Today, almost every financial institution offers credit cards. To get one, you need to have a good credit score and positive financial health. It also offers various offers and deals, allowing you to save more. Depending on your credit card issuer, a credit card may come with additional joining and maintenance charges.

BNPL vs Credit Cards

Here are some points to note that will help you choose the best payment option with easy instalments.

Topics	Credit Cards	BNPL Cards
Simplicity and Safety	1. Easily to convert bills into EMIs on the mobile app 2. Online account 3. Prompt customer care, depending on the financial company 4. Interest-free for 45-50 days	1. May require documents 2. Depends on the prior relationship with the merchant/issuer 3. Helps you get pre-approved credit if you qualify
Ease of Access	A good credit score and income are essential unless it is a secured card which offers guaranteed approval	Comes with no hard and fast eligibility measures, making it more inclusive
One-time Charges	Nil to ₹2,500 or more as a joining fee, depending on the financial company	It may require a processing fee and a down payment
Interest Charges	Up to 48%	Up to 30%
Acceptance	Widely accepted	Limited acceptance based on the retailer and financial institution

Why to Choose BNPL

If you have a poor credit score, you can choose a BNPL facility to manage your purchases without a credit card. Note that you may require a credit score of over 750 to get your credit card. However, BNPL allows you to build your credit score. All you need to do is to repay your credit on time and continue good repayment behaviour.

Moreover, you don’t need a credit score to opt for the BNPL facility. This is where credit cards lose in the battle when comparing BNPL vs credit cards. The next most exciting part of a BNPL facility is its low or zero interest rates.

Why to Choose a Credit Card

Credit cards are extremely convenient to use and widely accepted too. With one card, you can make payments in a variety of categories, whereas a BNPL facility is only useful for shopping for selected merchants and e-commerce sites.

While credit card interest rates are higher than a BNPL facility, it more than makes up for it with added benefits like:

Cashback
Reward points
Discounts
Travel benefits
Insurance covers

In some cases, credit card EMIs may also be interest-free, but this depends on the merchant.

Note that both credit cards and BNPL cards have value and can help you make purchases with ease. Overusing either facility can be detrimental to your finances, so always plan your budget and your repayment ability. Since credit cards offer more features, you may want to add one to your wallet soon.

In your search for the ideal card, check out the Fibe Axis Bank Credit Card – India’s first numberless credit card. Not only does it safeguard your data, but it also gives you a flat 3% cashback on food orders, entertainment and more and 1% on other categories.

You can also travel in style with up to 4 free visits to domestic lounges and save more with a 1% waiver on fuel surcharge. What’s more, this credit card comes with zero joining and annual fees. Download the Fibe App to apply for it now!

FAQs on BNPL and Credit Cards

Is BNPL better than credit cards?

Comparing the features of credit cards vs BNPL will help you choose the right one for yourself. While BNPL facilities may come with lower interest rates, you can only use them at specific retailers. Credit cards offer a variety of benefits, but the interest rates may be higher. In some cases, you can pay in EMIs at zero interest using both BNPL and credit cards.

Can you use BNPL with a credit card?

Credit cards are very versatile with their services and yes, you can use them as a buy now, pay later option with the EMI conversion facility. You may need to pay a nominal processing fee and interest rate for this facility.

Who is eligible for BNPL?

There are no particular eligibility measures for a BNPL facility, unlike a credit card. That being said, most financial institutions offer this facility to salaried applicants who are above the age of 18 and have basic KYC documents in place, like PAN and Aadhaar cards.

Is BNPL like a credit card?

A BNPL facility is limited to giving you the option to purchase something now and pay the bill in monthly instalments. A credit card offers many more features, such as giving you a long grace period to pay bills, having universal acceptance, giving you the option to convert bills into EMIs, offering discounts and allowing you to earn reward points.

Who is eligible to use BNPL services compared to a credit card?

Credit cards are meant for salaried individuals with good credit scores. However, there are no such limitations for BNPL cards. If the person has these eligibility criteria, then they can obtain a BNPL card.

Indian Citizen
Between 21 to 65 years old
Salaried individual/ Self-employed
Considerable credit score

Know How Pre-Approved is Different from Pre-Qualified Loans

Knowing the difference between pre-qualified and pre-approved loans is crucial, as both give you quick access to funds. Lenders provide these offers based on your creditworthiness and your previous relationship with them, if any.

These offers expedite the approval process as lenders already have the required details, thus enabling quicker access to money. Read on to better understand these offers and how they differ from each other.

What is a Pre-Approved Loan?

The following points will help you understand what these loans are and how they work:

Getting this loan is a more complex process compared to pre-qualification loans
This is because lenders require a more comprehensive approach when reviewing your credit history and other financial information
Like pre-qualification loans, these don’t guarantee a loan but are more precise estimations of whether you can get a loan and the amount you can get.
Lenders will conduct a hard inquiry on your credit score, which can temporarily dip your score

What is a Pre-Qualified Loan?

Check details about this lending facility below:

This is an initial stage of the borrowing process, where you submit financial data to the lender for review
You will have to furnish details about your income, bank account and the amount you want to borrow and more
Once done, the lenders will run a soft credit inquiry to evaluate your creditworthiness
Note that these inquiries don’t have any impact on your creditworthiness
Based on the evaluation, they will determine the amount you can borrow and determine the repayment options
Remember, this offer isn’t a guarantee that you’ll get the amount that you want.

Also Read: Get your loan approved within minutes

Difference Between Pre-Qualified and Pre-Approved Loans

Check out the following table to understand the difference between pre-qualified and pre-approved loans:

Basis	Pre-Qualified Loans	Pre-Approved Loans
Offer	Borrowers can initiate the process by submitting a pre-qualification form.	Lenders provide you with these offers if you appear on the list of creditworthy borrowers
Type of Credit Inquiry	Requires a soft inquiry into your credit, which doesn’t have any impact on your credit score.	Requires a hard inquiry into your credit profile, lowering your credit score temporarily.
Information Required	Lenders generally review basic information, including income and credit repayment history.	These generally have an in-depth review process and may require you to submit some documents to get an updated offer
Guarantee for Approval	They don’t guarantee loan approval.	While they don’t guarantee approval, their estimation is more accurate than pre-qualification.
Use	This offer allows you to weigh different lending options and choose the one that best fits your financial needs.	This service is the first step in securing a loan approval letter from the lender.
Estimation Results	Banks and other lending institutions generally provide instant results for pre-qualification.	Lenders may take several hours or days to provide a result.

Things to Consider When Opting for Such Offers

When assessing such offers, you must consider these aspects:

These offers don’t guarantee loan approval and are subject to change
These offers are only an estimation of:
- Your eligibility for a loan
- The quantum of funding you can borrow
- Your repayment options
Lenders may modify the pre-approved offer in case of a change in your credit profile
Paying your dues on time can help you secure a pre-approved loan offer
Manage credit responsibly and avoid adding to your existing obligations if you are finding it difficult to clear them timely.

All in all, being qualified for a loan gives you a clear idea of what to expect. On the other hand, being approved simplifies this process and reduces your loan disbursal time significantly.

With Fibe, you can get an Instant Personal Loan of up to ₹5 lakhs at affordable rates and flexible tenure. The application process, with minimal paperwork, takes not more than a few minutes. Download the Fibe Instant Loan App or log in to our website to get funds instantly.

FAQs on the Difference Between Pre-Qualified and Pre-Approved Loans

What does it mean when a loan is pre-approved?

Here is what this offer means:

Lending institutions extend this to their consumers with remarkable credit history
These products allow you to get funds with minimal documentation and processing time

What is the main difference between pre-qualified and pre-approved loans?

The key point of difference is that pre-approved offers are a more thorough and accurate representation of the loan you can get. Additionally, these offers are extended after a hard inquiry, which can lower your score. But pre-qualified are made available after soft inquiries, with no impact on your score.