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5 factors you should keep in mind that affect your personal loan EMIs
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Nowadays, placing an application for a personal loan is very easy and quick owing to its collateral-free nature. To avail the loan proceeds, you need to zero in on the appropriate lender, visit their website, fill out the loan form and hit on the personal loan apply button. Within minutes, if eligible, your loan request will be approved. While availing loan proceeds allows you to solve your instant financial worries, it may affect your financial stability over the long term if planned inappropriately. Thus, understanding specific parameters is crucial before applying for a personal loan as it can assist you to lower your personal loan EMI and keep your finances in control.
While things have massively changed over time as placing an application for a personal loan is no longer difficult or time consuming, it still is not considered a wise decision to borrow more than your requirement. You must always borrow the personal loan proceeds that you need. Note that borrowing more unnecessarily increases your personal loan EMI as it comes with a personal loan interest rate that you must serve until the tenure you have agreed for. As EMIs are directly linked with the loan proceeds you borrow, the prudent way to keep it to the lowest is by borrowing just the amount you require.
The loan repayment tenure is the overall repayment duration within which you agree to repay your principal constituent with interest. When you go for a higher repayment tenure, the instalment you pay monthly considerably falls. While it may appear like a prudent choice, the fact is when you choose a higher loan repayment tenure, you end up repaying more in the form of interest constituent than shorter repayment tenures. Thus, it is advised for you to work out your monthly finances and figure out an optimum monthly EMI for the shortest repayment tenure possible as per your repayment capacity and cash inflows. In this way, you can easily repay your outstanding proceeds quickly and even save a lot by paying less interest constituent. Note that to determine an appropriate loan repayment tenure, it is prudent to use an online personal loan EMI calculator.
A good credit score tends to have an impact on your EMI. If your score is 750 and above, then your chances of availing a personal loan approval at lower interest rates are higher. Securing a lower personal loan rate automatically converts into a comparatively lower personal loan EMI.
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You may be considered credible if your FOIR (fixed obligation to income ratio) is between 50-60 per cent. Having a lower FOIR infers you hold lower financial obligations than your monthly income. This, in turn, boosts the lenders' confidence in you as they consider you less risky because you may be able to pay your EMIs more easily than applicants with a higher FOIR.
- Interest Rate Type
EMI repayments are even determined by the interest rate type you select – floating and fixed interest rates. If you choose a fixed rate on your personal loan, then you can get the benefit of the same rate of interest across the repayment tenure. The floating rate of interest is determined by the Reserve Bank of India (RBI). Floating rates tend to differ during repayment tenures. This means, if the floating rate rises, then the personal loan EMI tends to increase too.
Ending note
When it is about personal loans, delaying even a single repayment can negatively impact your score, which is why it is crucial to apply for loan proceeds that you can repay easily. For this, you must factor in the above-mentioned points as these can assist you in repaying your personal loan effortlessly.
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