Tips to Effectively Manage Your EMI

On many occasions, people realize that their savings are not enough to meet their current requirements. It is then, that they consider taking various types of loans.

Getting a loan approved itself can be a matter of happiness, as the newly acquired funds now allow you to build your home or buy a car or pursue further studies. But with loans, come the Equated Monthly Installments (EMI).

Repaying a loan appears to be a long and difficult process when month after month, a huge chunk of your earnings is spent in paying the EMIs. And if you miss paying them, problems multiply as it hampers your credit score, leads to penalties, etc. To avoid situations like these, it is important to pay EMIs on time. We offer you the following simple tips for managing your EMIs effectively so that they don’t over-burden you.

Tips to effectively manage your EMI

a) Proper research before applying for loan: As they say, well begun is half done. The most important steps are zeroing in on the right amount of loan and then finding the right lender. EMIs or the tenure will increase with the loan amount. So, calculate what you can comfortably pay on a monthly basis and then identify lenders that are offering better schemes, as even a marginal dip in the interest rates can prove to be a much needed breather. Now decide what works best for you — a fixed-rate loan scheme or a flexible loan term — weigh both their advantages and disadvantages.

b) Always keep your credit score healthy: Having a good credit score will help you get a better deal on your loan from lenders. Pay your outstanding credit bills and previous loans to strengthen your credit score and then apply for the loan.

c) Make repayment your priority: Paying EMIs regularly on time, strengthens your creditworthiness and thus, you need to prioritize it. You can schedule the EMI close to your salary date and also opt for Electronic Clearing Service (ECS). If you opt for ECS, make sure there are sufficient funds in your account.

d) Use lump sums for your EMI payment: Any sizeable increase in the income like a bonus or a fixed deposit getting matured should ideally be used for prepaying the loan. These lump sum amounts, reduce the tenure of the loan and it is advisable to make them in early years of the loan, when the principal outstanding is high. However, make sure that lenders are not levying any extra charges on prepayment.

e) Pay an extra EMI every year: Paying an extra EMI every year is another way of getting rid of that loan, at the earliest. Lenders usually do not levy any charges on these prepayments. These extra EMIs reduce the outstanding loan amount and save a lot of money in the long term.

f) Do not default in payment: As mentioned earlier, defaulting EMIs, invite penalties as well as hampers your credit score. Lenders tag defaulters and share their information to credit bureaus. Aim to not fall under this dubious distinction. If your finances are badly hit due to some unforeseen reason, consult your lender and request for an EMI holiday where in special cases, lenders let customers, to not pay EMIs for a small period of time.

g) Refinance to lessen your burden: Refinancing is the procedure of replacing an existing loan with a new one because the new lender is offering a more favorable term. People refinance their mortgage to reduce their EMIs and loan tenure, or change their loan program type. But a processing fee is charged for the switch and one should calculate that the money saved in the longer run outweighs, the additional costs incurred at present.

h) Use mortgage calculator: Mortgage calculator is a tool to calculate your loan repayment capabilities. It helps you understand how much home loan you should take or what sum of money you can comfortably pay every month even as the principal amount and interest rates keeps changing. 

Summation and Conclusion

With some thorough planning while keeping the above tips in mind, managing EMIs would not be a cumbersome task. Paying larger EMIs and one or two extra payments every year or making a lump sum prepayment amount are great ways of getting the loan monkey off your back. Though, make sure that this does not disturb your monthly budget drastically. Also, maintain an emergency fund along the way to cope with unfortunate events.