A Personal Loan is what a lot of people turn to when faced with an emergency financial need. Every loan is a liability that carries interest and will need to be settled at a future date. The Personal Loan EMI repayments can affect your monthly outflow as well. So, it is important to know your EMI on Personal Loan beforehand.
A Personal Loan is the most convenient borrowing option when you need funds for smaller expenses. These loans do not require any security and are quickly made available to you. Plus, you also enjoy the added benefit of putting the loan to use according to your needs. Right from spending on your wedding, taking a vacation, carrying out home renovations or meeting your educational expenses; Personal Loans can be used for just about anything,
Personal Loan EMI
For the Personal Loan that you take from a bank or NBFC, you need to pay a certain rate of interest and the repayment is made is the form of Equated Monthly Instalments (EMI). The EMI is comprised of part of the principal amount and the interest. While in the initial years, the interest forms a major component of the EMI, towards the end of the loan tenor, it’s the principal that forms the major chunk of it.
Before you take a Personal Loan, you must;
- Check your Personal Loan Eligibility
- Compare the interest rates charged by different lenders to help you choose the lowest interest rate with flexible repayment options
- Calculate your EMI.
Calculating your Personal Loan EMI is easy with the availability online Personal Loan EMI calculators. Specify the loan amount, tenor, and rate of interest to know the EMI amount that you need to pay.
You can also easily calculate and compare the EMI at varying interest rates or varying tenor. This can prove to be very useful when you are comparing options and deciding on which plan to choose.
Calculating the EMI on a Personal Loan before hand is very important for three main reasons:
- You Can Ascertain Your Monthly Liability
You need to ascertain the monthly cash outflow as a result of taking a Personal Loan. Calculating the EMI beforehand gives you a correct estimate of the amount that you have to pay every month. This will make it it easy for you to plan your monthly budget.
By knowing your EMI liability beforehand, you’ll be able to plan your finances well, and not default while repaying your loan.
So, before you take a loan, estimate your current liabilities including EMIs on existing loans and then choose an appropriate loan amount and tenor. A longer tenor Personal Loan has a lower EMI, and a short tenor Personal Loan has a higher EMI. Choose one that best fits your budget.
- Helps You Maintain Your Credit Score
Servicing your debts is very important for maintaining a good credit score. Defaulting on an EMI payment can affect your credit score badly. The lender can levy a penalty making your creditworthiness suffer. In the long run, this can affect your chances of getting any other new loans as well. Knowing the EMI beforehand helps you choose an appropriate loan tenor such that you don’t default on EMI repayments.
- Helps with Revising the Amortisation in Case of Prepayment
Say you have some additional funds and want to prepay the outstanding Personal Loan amount. Many lenders charge a prepayment fee in such cases which is levied as as percentage of the outstanding loan balance. When you’re able to estimate the EMI beforehand, it is possible to get a revised loan amortisation schedule. You can easily find out at what point of time you should make the prepayment.
The next time, you decide to take a Personal Loan, make sure that you calculate the EMI beforehand so that it gets easy for you to plan out your finances, avoid payment default, and help maintain a steady credit score.