7 simple ways through which you can effectively plan your EMI
EMIs have become a recurrent term in our modern lives as loans with easy repayment options are the most preferred financing options for funding one’s aspirations and leveling up the standard of living these days.
While the availing of a loan can make things convenient, calculating finances and EMIs can be an intimidating task and if not planned properly, loans can turn into nightmares in no time taking away your hard-earned money.
With planning the repayment of your EMIs carefully helping you to avoid late payment charges and negative effects on your credit score, let’s have a look at 7 ways to effectively plan the EMI.
1. Scan & plan
The first thing that any individual who is looking forward to taking a loan, or is currently having one should do is to analyze your spending habits and figure out where the money is being overspent, and plan for the future.
Once you understand where you are spending more other than your EMI, try to cut back expenses on that. Planning your monthly finances according to your monthly income and the EMI rate you have chosen is crucial to make sure things are not going to become a burden.
2. Choose a short-term loan
Attributed to the limited tenure for repayment and not the speed of dispensation of funds, “short-term” personal loans do not require to post any collateral as security and can be repaid within a period of six months to a year - at most, two years.
Compared to a long-term loan, a short-term loan has higher EMIs, nevertheless, the overall interest paid at the end of the term will be profitable. With the principal amount in a short-term tenure loan paid faster, it lowers the interest rate as the interest is calculated on the outstanding principal amount.
3. Choose low-interest rates
The best way to ensure that you won’t be burdened by the payment of EMI’s is to find a personal loan with a low rate of interest. In recent times, there are a lot of banks and other organizations that provide a personal loan in the market, and therefore, while opting for a personal loan, always make sure to look around for the available options for the best ones.
There are also many online comparison platforms that can be made use of easily to check and compare the rates and choose the one that fits your needs as well as repaying capacity.
4. Pay off the principal amount
The principal amount is a payment made toward the original amount of a loan taken. Another most recommended decision to lower the burden of a loan is to pay off the maximum principal amount, rather than the payment of interest charged on the loan so that the interest rates to be paid to the bank will be reduced consequently.
Making use of the savings to pay off a part of the principal amount to get the interest rate as well as the principal amount reduced is also an ideal method.
5. Mutual funds
A mutual fund scheme is a type of financial instrument that is made by a pool of money collected from many investors which are invested in securities such as stocks, bonds, and short-term debts.
Mutual funds are another smart move that you can consider to invest the excess money you were able to save. A good mix of mutual funds can give you guaranteed returns over time and the money generated so can be used to prepay a part of your loan and take off the burden from your back.
6. Opt for a longer repayment tenure
The term of loan repayment is inversely proportional to the amount of EMI you have to pay for a particular loan amount. Opting for a longer tenure, the total due amount can be distributed over a longer span of time which can therefore reduce the payable amount as monthly installments.
The downside here is the rate of interest that will be charged on the outstanding debt for your extended duration. The amount of interest over the course of your loan tenure can result in a larger amount and you should be very careful while extending your loan period.
7. Negotiate with the bank for a lower rate
If you’re already a customer of any bank, it would be the wisest option to consider the same bank for taking a loan. Moreover, if have a good relationship with them, you can also consider negotiating with the bank for a lower rate of interest on your loan.
Banks; provided the relationship you have with them as a customer, might be willing to grant you a lower rate of interest on your loan, which can increase their brand loyalty and thereby attract more customers.
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