Personal loans are one of the most popular financing options available today. These unsecured loans are the go-to choices of Indians to meet their big-ticket expenses. Home renovation, weddings, higher education, exotic vacation, and debt consolidation are some of the exceptional uses of a personal loan.
Some people also avail a personal loan to improve their credit score. All in all, these loans are beneficial as long as you manage them the right way. Paying your personal loan EMI at the right time ensures the same.
Here are some easy steps to manage your EMIs effectively:
Step 1. Calculate the EMIs before applying for loan
Calculating your EMIs before applying for a loan helps you determine whether you will be able to pay them or not. A loan calculator can help you do precisely the same. This calculator evaluates the loan EMIs based on the principal amount and tenor.
Impact of loan tenor on EMIs and total interest payable
Do note that your loan tenor will impact your EMIs. While a longer tenor reduces the EMIs, a shorter tenor does the opposite. Again, a longer tenor increases your total interest payable while a shorter tenor decreases it.
Consider the following example:
You took a personal loan of Rs.12 Lakh at a rate of interest of 12% per annum. Check out your EMIs and total payable interest for 3 and 5 years:
3 years –
- EMI – Rs. 39,000 (approx.)
- Total payable interest – Rs. 2.3 Lakh (approx.)
5 years –
- EMI – Rs. 26,000 (approx.)
- Total payable interest – Rs. 4 Lakh (approx.)
A longer tenor makes the cost of loan (principal + total payable interest) more expensive than a shorter tenor.
Step 2. Make sure your income can cover the EMIs
It is necessary to ensure that you will be able to pay the loan EMIs from your current monthly income. An ideal way to check the same is to calculate your debt-to-income ratio or Fixed Obligation to Income Ratio (FOIR).
It is the ratio between your fixed monthly debts and income. You must make sure that your monthly obligations along with the new loan EMIs is not more than 50% of your income.
A below 50% FOIR is one of the important personal loan eligibility criteria required by several financial institutions in India.
Step 3. Improve your credit score
A credit score of 750 or more can help you avail a lower rate of interest, thereby, making your EMIs affordable.
An ideal way to improve your credit score is to avail a credit card. However, you have to ensure the following when using it:
- Always pay the total amount due and not the minimum payable amount.
- Keep the credit utilisation under 30% of the credit limit.
- Never apply for too many credit cards.
Many a time, credit card companies may want you to hold a high score to avail their products. In such cases, you can go for a secured credit card provided against a fixed deposit.
Step 4. Avail a loan from NBFC to get lower interest rates
NBFCs have less stringent rules and regulations you have to abide by, along with a competitive personal loan interest rates. Bajaj Finserv is an NBFC that provides personal loan up to Rs.25 Lakh with tenors ranging from 12 to 60 months. You also have to provide with a few personal loan documents and fulfil simplistic eligibility criteria.
Bajaj Finserv also brings you pre-approved offers that lower the time consumed in availing loans by simplifying this procedure to avail funds. Pre-approved offers are available on personal loans, home loans, business loans, and a host of other financial products and services. You can check your pre-approved offers by providing only your name and phone number. Following these steps can help you manage your personal loan EMI effectively. These will not be your financial burden anymore, and you can also keep your credit score healthy.
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