May 31 (PR): Exhausting your hard-earned savings to fulfil your dreams is not a great idea if you have easy access to personal loans. You can use this loan for anything, be it purchasing a new car or paying for your medical bills. The simple application process, easy personal loan eligibility criteria, and minimal documentation make it a popular choice among borrowers. But where the problem lies? It's when you start repaying your EMI.
In today's article, we will suggest some tips on how to efficiently manage your EMI.
1. Personal Loan Eligibility
The EMI management starts even before you have applied for a loan. Yes, you read that correctly. Let's understand this differently. As you know, your loan interest rate is reliant upon the factors that impact your personal loan eligibility. If you are hardly meeting the lender's minimum requirements, be prepared for a hefty interest rate. The higher the interest rate, the larger will be your EMI. The situation puts a strain on your wallet and raises the risk of defaulting on your EMI payments.
2. Use EMI Calculator
You must also use the personal loan EMI calculator to manage your monthly debt obligations. The calculator lets you know your EMI even before you have applied for a loan. You can use the different combinations of the desired amount, loan repayment period, and interest rate. The calculator helps you check your affordability while also allowing you to compare the personal loan with various lenders. Let's take an example to understand this point better.
You can see from the table that if you decide on a longer tenure, the total interest you will pay on the loan will be higher. It is now up to you to decide whether you want a pocket-friendly EMI or a low-interest loan with a larger EMI.
3. Never overborrow
One of the most common reasons why most people fail to repay their personal loans is overborrowing. There may be times when you qualify for a higher amount than you require. There is also a possibility that when you apply for an offline loan, the lender representative may persuade you to apply for the maximum amount you qualify for. But before you take any step, always keep in mind that personal loans are an unsecured form of financing. The interest rate on such loans is also a bit higher than the secured loan. As such, there is a high likelihood that you will have difficulties repaying your EMI in the long term if you overborrow.
4. Minimise Credit Card Usage
You might be wondering why it is always recommended to use credit cards cautiously, especially when they don't charge interest if you pay them off on time? So, the answer itself is interest rates. People extravagantly utilise credit cards. As a result, they find themselves in situations where paying off their credit card bills appears to be impossible.
The situation not only worsens your credit score. But it also makes it difficult for you to repay your personal loan EMIs. Therefore, it is advisable to limit your credit card usage below 30% and only use them when absolutely essential.
5. Cut Unnecessary Expenses
If you want to manage your EMIs more effectively, simply make changes to your living style. Yes, you read that correctly. Changing minor habits can help you to increase your savings rate and raise funds in your emergency fund. If you're not sure how to make lifestyle adjustments, here are a few suggestions.
? If you have a routine of ordering food from a restaurant every day, try switching to home-cooked meals.
? Avoid spending extravagantly on shopping.
? Limit your outing.
? Avoid replacing your costly gadgets every next month.
6. Maintain Emergency Funds
A financial crisis can strike at any time. But, if this happens, your entire budget would be ruined. You may have trouble keeping track of your household expenses, paying your children's education fees, and repaying your personal loan EMIs. In such situations, the best option is to tap into your emergency reserves. A sufficient emergency fund might assist you in managing both your basic spending and EMI payments.
Here are some suggestions about how to build a corpus for emergency funds.
? Allocate some portion of your income to emergency reserves every month.
? Choose to invest in short term investment schemes.
? Invest in retirement plans and fixed deposits.
To conclude:
So, if you have a personal loan, make sure to follow the above guidelines to manage your EMI effectively.