Whether you have taken a loan to buy a house, a car, or to fund your education, the repayment is done through equated monthly installments (EMI). Managing EMI is an art and the trick is to repay the loan without getting into financial pressure. Here are a few tips on how to manage your EMIs.
List your debts/EMIs Make a list of all your EMIs/debts. This amount should not be more than half of your salary. After creating the list, if you see that your debt is more than 50% of your salary, you should consider increasing the duration of the loan to reduce the EMI. Using a mortgage calculator is a critical aspect of managing EMI. Before you opt for a loan, and the associated EMI, use a mortgage calculator to see how much loan you can afford. A mortgage calculator can help you plan the monthly EMI payment and you will also know your down payment.
Think and then borrow
These days one can buy anything with a loan. Be it a house, furniture, home furnishings or even a holiday, a loan is available for all your expenses. Stop and think before taking a loan. Avoid loans and EMIs that do not create tangible assets. The only exception to this rule is an educational loan.
Though it is easy to pay by credit card, remember to clear your bills before the due date. Personal loans are easy to avail and one does not have to state the end-use of funds. But both these options should only be used in emergencies as they have very high interest rates. It is better to manage your funds in a manner so that you do not have to resort to these two options.
Go for a shorter tenure
If your finances permit, borrow for a short tenure. A shorter tenure of loan means less money paid as interest. Most banks allow advance or extra EMI payment. If you get a hike in your salary, or if your relatives have gifted you some money, or a recurrent deposit or fixed deposit has matured and you have some extra cash in hand, use it to prepay a part of the loan.
Maintain a good credit score
A good credit score means you can get a better deal on your loan and EMI payment. The Credit Information Bureau India Ltd (CIBIL) can create a credit report and credit score for you on payment of a small fee.
Compare the loan
The internet is a tool available to most of us. Use it to its maximum potential while looking for best tips to manage money and learn how to manage EMIs. Look at the different options available from various banks and see what suits you best. Since all of us have unique financial situations, a one-size-fits-all approach does not work. Online research will save you the hassle of interacting with officials from different banks without the requisite knowhow. Once you have an idea of what might work for you—a fixed-rate loan scheme or a flexible loan term—you will be better prepared to make the best of managing your EMI.
Don’t delay, never miss an EMI
One cannot stress enough on the importance of this aspect when discussing how to handle loans and ways to manage EMI. If you delay or miss an EMI payment, not only will you incur extra charges as penalties, your credit score will also go down. With these tips to manage EMI you should be well set to manage your funds in a way that EMI payment becomes a breeze.
By Anuj Kacker