Things you must know about Your EMI Before Taking a Personal Loan

A personal loan can help cover major expenses like travel, weddings, medical emergencies, or home improvements. When applying for a personal loan, you will not need to offer any of your assets as collateral. 

When applying for a personal loan, it is important to understand your EMI, which is the amount you will be paying every month fixed until the loan is paid back, covering both principal and interest. Knowing your personal loan eligibility helps you know how much you can borrow at what interest rate.

Let's take a look at everything you need to know before applying for your personal loan.

What is EMI, and why does it matter?

EMI , or Equated Monthly Installment, denotes the regular installment you will pay every month in order to gradually repay a loan. Each EMI consists of a share of the loan amount (the principal) amount and a share of the interest payable to the bank.

Having an understanding about your EMI is essential as it helps you with monthly budgeting.

How Personal Loan EMI is calculated

Your personal loan EMI would depend on the below-mentioned three factors:

-          Loan amount

-          Interest rate

-          Loan tenure

One doesn’t need to calculate it manually. Many banks offer free EMI calculators wherein you just have to enter your values to see your monthly EMI instantly.

 

How to calculate your EMI for a personal loan? 

Loan calculators come very handy while calculating EMI for personal loans. The following are some steps you need to follow:

1. Enter your loan amount: Establish the loan amount that you are planning to borrow.
2. Enter the Interest Rate: Enter the interest rate offered by the bank or lender for the personal loan. 
3. Select the Loan Tenor: Select the time you want to take to repay the loan. The loan tenor can be in months or even in years.

 

Factors That Affect Your EMI

1. Loan Amount: The higher the amount you will be borrowing, the higher your EMI will be.
2. Interest Rate: Even a minor difference in the interest rate can change your EMI considerably. Hence, comparing offers is important
3. Loan Tenure: Longer loan tenures reduce your monthly EMI but increase the total interest you pay overtime. Shorter tenures have higher EMIs but also save on interest.

 

Why It’s Important to Know Your Personal Loan EMI Before Borrowing

1.      Helps you to plan your monthly budget

When one applies for a loan, it becomes a new monthly expense. By having an understanding about EMI, you can plan your monthly expenses beforehand. You'll understand how much of your income will go toward repaying the loan and how much will be left for your other monthly expenses. 

 

2.      Prevents You from Borrowing More Than You Can Handle

Sometimes, people are tempted to take large loans simply because they are eligible for them. But a bigger loan also means a higher EMI, which can also become a liability in the long run. If you apply for a personal loan without checking on the EMI, you might put a lot of pressure on other financial expenses.

 

3.      Helps you Compare Different Loan Offers Easily

Every loan is different. Different banks provide dissimilar interest rates, processing fees, and loan tenures. You can use online EMI calculators to know and compare various loan options and figure out which one is most appropriate for your needs. It is best to compare your personal loan EMIs from different lenders to find the best deal.

 

Conclusion

Knowing your personal loan EMI ahead of time allows you to gain control over your finances. When you know your EMI, it helps you to plan better and alleviate the stress of debt, as you are not entering into a loan wholly blind. Further, a prior calculation of your EMI allows you to select the lowest option available that meets your financial needs.

Always make it a rule to check the EMI before taking a personal loan.

Tags

Share