Bangalore: Loan is nothing but your personal finance debt, but it can be a great tool to build your wealth. Loans offers you many benefits, like achieving the financial goal of buying a home or car through home or car loans, without waiting for too long. Wealthy investors often take loans to help themselves get even wealthier. But before knowing how to build your wealth with a loan, you should know what kind of loner you are as each type has a unique viewpoint when it comes to taking a loan.

Factual Truth about Loans

But the simple factual truth about a loan is that it is a borrowing of funds for a particular purpose. A loan gives you the opportunity to incur the expenditure like buying a property that you wish to buy, when you want to buy it and repay the amount by playing small EMIs every month.

There are two main aspects to a personal finance debt or loan; one is different kinds of loans available, and how to ensure you don't over borrow, another is it is sometimes better NOT to prepay your loan.

Debt to Income Ratio

                                              Total monthly outgoings on liabilities (EMIs)

Debt to Income Ratio =          Total monthly income from fixed sources

As stated, this ratio is simply the sum of your monthly outgoings (EMIs) on your liabilities, divided by your total fixed monthly income. Logically it should not be more than 0.35 (or 35 percent), or else you are sure to put a strain on your finances to serve your debt.

You can maintain this ratio by accessing your monthly income and expense and evaluate how much of additional outflow you can afford as an EMI. After calculating accordingly you can decide the loan amount what you can afford. The higher the loan, the EMI you pay. An easy calculation is that EMI will be as many thousands per month, as every 1 lakh loan you take. For example, the EMI for a loan of 15 Lakh will be 15,000.