Life amid a raging pandemic is not easy. Health concerns, financial troubles, business challenges, working from home—most of us are reeling under these situations. But as it has been proved time and again, everything is possible and manageable with some foresight and planning. This holds true even for the
repayment of loans. While saving up for the EMI amount, amid all the unexpected expenses, every month could be a difficult task, recalling the benefits of doing so will motivate you to avoid a
loan default. Also, there are some tried and tested ways of ensuring that you pay your EMI regularly online on time, every time. Let’s start with the benefits.
Benefits of Paying EMI on Time
Of course, the most obvious benefit of paying EMI on time is that it steadily reduces your loan burden and brings you closer to loan closure, one EMI at a time. But that is not all. Here is a whole list of benefits of paying your loan EMIs on time.
Improves credit score
Credit history is one of the most crucial factors in determining your loan amount and interest rate. If you have any existing loan and you pay your EMI regularly online, it will improve your credit history. Timely paying off an EMI means you have strong creditworthiness; it makes your future borrowing easier. Whenever you apply for a new loan, the lender usually considers your good credit before approving your loan at the earliest. You may also get a higher loan amount if you have a strong credit history.
Saves you from the penalty
Missing a loan EMI payment or defaulting on loan payments can have serious consequences for the borrower. If you consistently miss payments on your
bike loan EMI or a car loan, your lender has the legal right to seize your vehicle. Apart from this, they might even charge a huge penalty on your loan. Typically, the penalty is a percentage of the EMI amount. However, if you are paying your EMIs on time, you would not have to face such unwanted situations.
Option to avail of a top-up loan
It is a sort of financing option where the borrower is offered an extra loan that is over and above the existing loan amount. This option is available on products such as personal loans, business loans and home loans. If, as a borrower, you
pay your EMI online on time and are maintaining a healthy credit history, you can easily get a
top-up over your existing loan.
Strengthens relationship with the lender
The relationship between a borrower and a financial institution is a two-way street. The way a borrower relies on the lender for financial assistance, lenders also earn from the borrower via interest charges. While a lender offers funds, in the form of a loan, to a borrower in need, the borrower pays his/her dues on time and maintains loyalty towards the lender. As a result, lenders offer more attractive products and affordable low-interest rate loans to their customers.
Attractive offers
Customers with a strong repayment history may get attractive loan offers from their lenders. The offers can be seasonal, or anytime depending upon your lender. So, if you pay your loan EMIs on time for a long period, do not be astonished if you get low-cost loan offers. Your lender may also offer high credit limits, gift vouchers and shopping cards to you. All of this will allow you to have a seamless online and offline buying experience.
Also Read: Understand Your EMI: Equated Monthly Installment Tips to Pay Your EMI on Time
Now that you know the benefits of paying EMIs on time, it is important to know how you can do it without a miss. With some tips, tricks and planning ahead, you can make sure that you never miss an EMI ever.
Plan your budget
If your EMIs are going out of your monthly budget, it is better to cut down unnecessary expenses. Avoid spending on luxuries such as clubbing, movie outings and expensive dining. Also, avoid using credit cards as much as possible. A credit card comes with a higher interest rate and can unnecessarily increase your debt burden. All this can help you plan your finances in a better way. You may also use EMI calculators such as
personal loan EMI calculator,
second-hand car loan EMI calculator and bike loan EMI calculator to get an idea of the EMI obligation even before you avail of a loan.
Increase repayment amount with the increase in the income
Be a smart borrower and try to increase your EMI whenever there is an increase in your income. It is one of the easiest strategies for faster debt repayment. Here is an example for better understanding. Let us assume your monthly income increases by 10%. Then you can increase your monthly payment amount by 4% to 5%. You may also increase the amount of EMI per year, just like you increase your investment. Prepayment of loans should be prioritised whenever you have additional funds by your side.
Use your investment
Are you burdened with a high-interest rate loan? Is your debt status worsening due to non-payment of EMI? Keep your worries aside. You can now borrow against your life insurance policy or the PPF. The PPF permits the investors to take a loan against the balance from the third year of investment. However, the same amount must be returned within three years. You may also break your mutual funds’ investment or your FD to pay off your dues. If your FD is fetching you an interest of 8% and your loan interest rate is 15%, it is advisable to liquidate your investment and pay off your dues.
Debt consolidation
If you are burdened with too many loans, you may find it difficult to pay off your EMIs during your hard times. Missing out on EMI will not only attract a penalty but will also impact your creditworthiness. However, if you can secure a loan at a lower interest rate,
debt consolidation may be a viable option for you. The concept is that you get a loan with a considerably cheaper interest rate than what you are paying on your current debts. This will assist you in reducing your total debt and reorganising it so that you can pay it off more quickly. For example, you can avail of a personal loan if credit card dues go beyond your budget. Personal loan interest rates are significantly lower than credit card rates, so you can easily repay the full balance.
Long tenure
Your EMI is determined by the length of your repayment period. If you choose a long-term loan, your EMI will be much lower. However, this will increase the interest burden. To determine the best tenure, use an EMI calculator.
Check out the table below to get an idea of how tenure will affect interest and EMI.
| Parameters | Repayment Tenure |
|---|
| 1 Year | 2 Years | 3 Years | 4 Years | 5 Years |
|---|
| Loan amount | Rs 3,50,000 | Rs 3,50,000 | Rs 3,50,000 | Rs 3,50,000 | Rs 3,50,000 |
|---|
| Interest rate | 12% | 12% | 12% | 12% | 12% |
|---|
| EMI | Rs 31,097 | Rs 16,476 | Rs 11,625 | Rs 9,217 | Rs 7,786 |
|---|
| Interest payable | Rs 23,165 | Rs 45,417 | Rs 68,500 | Rs 92,408 | Rs 1,17,133 |
|---|
Balance Transfer
A
balance transfer is a financing arrangement that transfers the outstanding loan balance to the new financial institution. Borrowers choose this scheme in order to lower their interest rate and EMI. If you choose this scheme, keep in mind that it is up to the new lender to accept or reject your application.
Things to Avoid to Make EMI Repayment Easier
- Never overborrow. Borrow after assessing your needs. If your funding requirement is Rs 1,00,000 and you borrow Rs 500,000 based on your eligibility, you are unnecessarily increasing your burden. It is more likely that you will fall into a debt trap.
- Never overlook your income and spend ratio. Examine your montly income and your indespensible expenses. Apply only for the amount whose EMI you can comfortably afford.
- Never skip making a well-thought-out repayment plan. Plan your expenses in accordance with your EMI as soon as you receive funding.
Also Read: Consequences Of Non-Payment Of EMI And Ways To Avoid It To Conclude
Keep your income in mind before taking out a loan. The thumb rule is never to exceed your EMI over 50% of your gross income. You never know when an unpredictable circumstance arises and affects your repayment capability. In such cases, rather than fleeing from your lender, you should try to find a solution that can help you to pay your EMI regularly online. It will not only help you in improving your credit history but will also open the door to more borrowing opportunities in future.
Disclaimer: This post was first published on 9th June 2021 and has been updated for the latest information, freshness and accuracy. 
