New Delhi [India], February 07: Getting a personal loan is not just access to funds, but a long-term financial commitment that needs careful planning, and most importantly, ensuring that the EMI does not burden your finances, or put you at the risk of defaulting on the loan.
Borrowers usually tend to focus on the loan amount and the interest rate and often underestimate the most important aspect of a loan, its EMI. An EMI is the money debited from your bank account every month to repay your loan. It has to fit into your monthly income comfortably. To get the correct estimate of EMI, using an EMI calculator is crucial.
What Is An EMI and Why Does It Matter?
Equated Monthly Instalment or EMIs are a fixed amount that a borrower must pay a lender every month as loan repayment for a fixed tenure. The EMI has a part principal and part interest amount.
The EMI has a direct and significant impact on your monthly cash flow. A higher EMI may put you under financial strain, while a longer loan tenure may increase the overall cost of interest paid. Finding the correct balance between these two scenarios is important.
How an EMI Calculator Helps Before You Borrow
An EMI calculator allows you to get an amount based on the three primary criteria: loan amount, interest rate, and loan tenure. The calculator instantly displays the loan cost and the EMI. This helps the applicant get an exact figure over random guesses. Before taking on the financial responsibility of a personal loan, it is prudent to do these calculations to make an informed decision.
Understanding the Impact of Loan Tenure
Loan tenure plays a significant part in deciding the final EMI. Typically, shorter tenures have higher EMIs, and longer tenures have lower EMIs. It is also prudent to understand that longer tenures increase the overall loan cost.
EMI calculators allow you to adjust tenure and find an EMI that is well-suited for your current monthly income. This helps you avoid the risk of defaulting on EMI payments, which can lead to a long-term negative impact on your credit score and your ability to get approvals for credit products in the future.
Interest Rates and EMI Planning
The EMI amount is directly impacted by the interest rate. Even a slight difference can significantly change the overall loan amount to be repaid to the bank.
By using an EMI calculator, you can easily compare interest rates and see which loan offer is most economically comfortable for you.
Planning Repayments Responsibly
An EMI calculator allows the lender to identify the comfortable loan amount to borrow without taking on additional financial burden. Applicants can reverse the calculation by putting in the EMI that is comfortable in their budget, and see the loan amount that fits it. This helps you avoid over-borrowing and making practical decisions based on facts and figures.
Several leading lenders, such as IDFC First Bank, offer entirely digital personal loan application process through their offerings like FIRSTmoney. FIRSTmoney personal loan offers instant disbursal and a hassle free 100% digital process. The Bank also provides an EMI calculator to help borrowers make financially sound decisions.
Avoiding Common Borrowing Mistakes
Due to a lack of planning and using speculative numbers, borrowers may end up in stressful situations. An EMI calculator helps avoid:
- Taking a higher loan
- Choosing the wrong tenure
- Underestimating interest costs
Using tools like EMI calculators to your advantage is a smart decision for any applicant looking for a personal loan.
Choosing the Correct Lender
While modern tools are important, choosing a reliable lender is equally critical. Borrowers should look for transparent loan terms, flexibility of repayment, and digital support throughout the entire process.
Banks like IDFC FIRST Bank provide a 100% digital process from calculating EMIs, loan application, KYC, approval, and disbursal. FIRSTmoney personal loan by IDFC FIRST Bank also provides flexibility in the form of choice for repayment tenure and EMI date between 3rd to 8th of a month, making paying EMIs more comfortable for borrowers.
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