It is important to manage your personal loan equated monthly installments in order to maintain your financial stability. Not paying your EMIs on time will have multiple consequences. Even a single missed payment will knock off your credit score by a few points. Several missed payments will bring down your credit score drastically. Also, if you accumulate debt, you will reach a point where you will no longer be able to pay it and fall into a debt trap. Besides, banks and financial institutions impose late penalties for defaulted payments. All these make it highly essential to pay your monthly EMIs on time. Let us now discuss 6 smart strategies to manage your personal loan EMIs and monthly budget.
6 Strategies to Manage Your Personal Loan EMIs
- Create a Budget: Create a monthly budget that lays down your income and expenses approximately. Include your personal loan EMIs as one of your fixed monthly expenses. Paying the EMI should fit in your budget comfortably and should leave room for other payments. Also, it should not exceed your budget. Otherwise, you will be taking another loan to pay off the already existing EMIs and only end up accumulating debt.
- Choose the Right Loan Tenure: When applying for a personal loan, choose a loan tenure that aligns with your financial capacity. Adopting a longer tenure may decrease your monthly EMIs but will also increase the overall interest paid over the loan’s lifetime. A shorter tenure results in higher EMIs but lowers the overall interest costs. Therefore, choose a loan tenure that does not put a strain on your finances and suits your budget.
- Prepayment or Part-Payment: Prepaying or part prepaying your loan will reduce the principal amount. This will help you pay your loan faster. It will reduce the EMI amount or shorten the loan tenure. Thus, when you have extra funds, consider making the prepayments or part-prepayments on your personal loan. However, before you opt for prepayment, check your loan agreement for any prepayment penalties or conditions.
- Consolidate Debt: If you have multiple loans or credit card debt with higher interest rates, consider consolidating them into a single personal loan with a lower interest rate. This can reduce your overall EMI and make it easier to manage.
- Maintain an Emergency Fund: To avoid defaulting on your EMIs if you have any unexpected expenses or emergencies, then you should maintain a corpus or an emergency fund. In this way, you can continue to pay your loan EMIs even when faced with unpredicted financial challenges.
- Refinancing or Loan Transfer: Consider refinancing or transferring your personal loan when the lender is offering a lower interest rate compared to your current loan. This can decrease your EMI, provided there are no significant associated costs or fees that exceed the amount reduced in your EMI.
Tips To Reduce Your EMI Amount
Reducing your EMI amount will help you manage your personal loan EMI better. Here are a few tips to decrease the EMI amount
- Compare loan offers and choose the loan which offers a low interest rate.
- Use an EMI calculator and compute your EMI before you take a loan. In this way, you will be able to take the best fitted loan.
- Use a personal loan EMI calculator to find out the best repayment schedule so that your EMIs are very affordable.
- Maintain a high credit score and reduce financial debt to get a competitive interest rate on your loans.
- Opt for a Step-Down EMI. Some banks offer a step-down EMI plan, where the EMI reduces over the duration of the loan. This can be useful if you expect your income to increase in the future.
- Choose the Right EMI Date. Opt for an EMI date that aligns with your salary or income cycle. This will help you in ensuring that you have sufficient funds to cover the EMI without burdening your finances.
- Specify all income sources in the loan application to improve eligibility and show a higher repayment capacity.
- Read the fine print of the loan agreement with caution to know about any additional charges.
- Avoid Loan Insurance. Sometimes lenders offer loan insurance or credit protection insurance, which increases the EMI. If you have adequate insurance coverage through other means, you can reject this option.
Managing your personal EMI effectively requires financial discipline and planning. It is important to stick to your budget, avoid unnecessary expenses, and communicate with your lender if you feel that you will have any hardships in making your EMI payments. Defaulting on your personal loan can harm your credit score and result in legal consequences. So, always ensure to make timely payments. Look for instant personal loans from reputed lenders and opt for the best loan plan with EMI, interest rates, and tenures that don’t burden your finances.