Applying for a personal loan can provide much-needed financial relief in times of emergencies or help fund major life goals. However, one of the critical aspects of managing a personal loan is ensuring that you can comfortably handle the monthly EMI (Equated Monthly Installment) payments. In this blog, we will walk through various strategies to help you manage your personal loan EMI effectively, from understanding what it is to exploring ways to reduce your EMI burden.
What is a Personal Loan EMI?
A personal loan EMI is the fixed monthly amount you pay to repay the loan you have taken. The EMI is calculated based on the principal amount, interest rate, and the tenure of the loan. The EMI amount typically remains the same throughout the loan repayment period unless you decide to make a prepayment or opt for a loan restructuring.
Understanding the breakdown of your personal loan EMI is essential. The EMI amount consists of two parts:
- Principal Repayment: The portion of your EMI that goes toward reducing the actual loan amount.
- Interest Payment: The amount charged by the lender for lending you the money.
To learn how to pay extra EMI for a personal loan, check with your lender about their prepayment policies and procedures, as some may require prior approval or charge a nominal fee.
Why Is Managing Your Personal Loan EMI Crucial?
Managing your personal loan EMI effectively is essential for several reasons:
- Avoiding Default : Missing EMI payments can negatively affect your credit score and also lead to penalties.
- Financial Health : A well-managed EMI ensures that your loan repayment does not disrupt your monthly budget.
- Credit Score Impact : Timely payments help maintain or enhance your credit score, making it easier for you to obtain credit in the future.
- Reducing Financial Stress : Managing your EMI ensures that you do not feel overwhelmed by the loan and can focus on achieving other financial goals.
If you are wondering, can I pay extra EMI for a personal loan? The answer is yes-many lenders allow you to make additional payments to reduce your principal and overall interest burden.
How to Keep Your Personal Loan EMI Low?
If you are concerned about the size of your EMI and want to reduce it, here are a few strategies:
- Opt for a Longer Loan Tenure : A longer tenure can reduce the EMI amount as it spreads the repayment over a more extended period. However, keep in mind that this increases the total interest cost.
- Negotiate for a Lower Interest Rate : If possible, try to negotiate a lower interest rate with your lender. A lower interest rate will reduce your EMI.
- Consider a Balance Transfer : There may be balance transfer options the lender offers you, which will help you shift that personal loan to another bank with a lower interest rate.
- Prepayment of some amount : Once extra funds are available, an amount can be paid, which further reduces the EMI with an enhancement in the tenure.
Tips to Manage Your Monthly Personal Loan Payments Effectively
If you are looking to ease your financial burden, opting for a low EMI personal loan can help you manage your monthly payments effectively while still meeting your financial needs. The following are some practical tips to keep you at the top of your game with your personal loan EMI payments:
- Create a Budget : Factor in your EMI as part of your monthly budget. This way, you will be able to spend the right amount for the loan repayment without disturbing the other expenses.
- Set up Auto-Debit : Set up an auto-debit for your EMI to avoid missing payments. It ensures that the payment is automatically deducted from your account on the due date.
- Track Your Payments : Monitor your EMI due dates and outstanding amounts to avoid any surprises.
- Avoid Unnecessary Borrowing : Taking on more debt while repaying a personal loan can strain your finances and make it challenging to manage your EMI.
Common Mistakes Borrowers Make While Managing EMIs
Borrowers often commit a few common mistakes while handling their personal loan EMIs:
- Not Checking EMI Affordability : Failing to assess if the EMI is affordable before availing the loan can create pressure on one’s pocket.
- Skipping Payments : Not paying EMI on time can result in late payment fees, increased rates of interest, and even a decreased credit score.
- Overextending the tenure of the loan : Selecting a very long tenure to reduce the EMI makes the loan quite affordable but increases the total interest paid.
- Ignoring Prepayment Options : Failure to use the prepayment or partial payment option may lead to repayment over a longer period and, of course, higher interest.
Alternatives If You Find Difficulty with Your EMI Payments on a Personal Loan
If you are finding it difficult to manage your personal loan EMI, here are your alternatives:
- Request a Restructuring of Loan Terms : Ask your lender to help you in making changes in terms, like extend the tenure, or temporarily changing the EMI.
- Pay Some Prepayment Amount : Once you have extra cash lying around, pay off the principal to lighten your burden of EMI.
- Loan Moratorium : Borrowers sometimes get an option called moratorium, where they get temporarily relieved from paying EMIs. It is a very temporary relief given for financial difficulties.
- Refinance : Availing a loan with better terms and lowering the rate of interest in the refinanced loan makes life easier and eases the financial burden of EMI payments.
Bottom Line
Managing your personal loan EMI effectively is crucial to maintaining financial stability and avoiding stress. By getting familiar with the constituents of EMI, choosing an apt tenure, and also exploring ways to reduce the amount, you can handle your repayments more efficiently. Along with these, staying on top of your payments, avoiding common mistakes, and knowing your alternatives if you struggle with payments will help you manage your loan more effectively.
Planning to apply for a personal loan? Stashfin offers flexible repayment options to help you easily manage the EMI of a personal loan, ensuring a hassle-free borrowing experience tailored to your needs.