If you are someone who has taken a loan or used a credit card, you are probably familiar with the term EMI or Equated Monthly Installment. EMI is a convenient way to repay loans or make big purchases in easy monthly installments. But managing your EMI payments can be tricky, especially if you have multiple EMIs to pay each month. In this article, we will explore the world of EMI and provide some tips on how to manage your monthly payments wisely.
What is EMI?
EMI is a fixed amount that you need to pay every month to repay your loan or credit card dues. The EMI amount consists of both the principal amount and the interest charged on it. The EMI payment continues for a fixed period until the loan is fully repaid. The EMI payment is calculated based on the loan amount, interest rate, and loan tenure.
Types of EMIs
There are two types of EMIs – Fixed EMI and Flexi EMI.
Fixed EMI
As the name suggests, fixed EMI is a fixed amount that you need to pay every month. The interest rate and the loan tenure are fixed, and hence the EMI amount remains constant throughout the loan tenure. Fixed EMI is suitable for people who have a stable income and can budget their expenses accordingly.
Flexi EMI
Flexi EMI, also known as Step-Up EMI or Step-Down EMI, is a type of EMI where the EMI amount changes periodically. In Step-Up EMI, the EMI amount increases with time, while in Step-Down EMI, the EMI amount decreases with time. Flexi EMI is suitable for people whose income is likely to increase in the future.
How to manage your EMI payments wisely
Managing your EMI payments can be tricky, especially if you have multiple EMIs to pay each month. Here are some tips on how to manage your EMI payments wisely.
Create a budget
Creating a budget is the first step in managing your EMI payments. List down all your expenses and income, including your EMI payments. Allocate a certain amount for each expense, including your EMI payments. Stick to the budget and avoid overspending.
Prioritize your payments
Prioritize your EMI payments based on the interest rate and the outstanding amount. Pay off the loans with the highest interest rate first, as they accrue more interest over time. Also, try to pay off the loans with the highest outstanding amount first, as they take longer to repay.
Consolidate your loans
If you have multiple loans with different interest rates, consider consolidating them into one loan with a lower interest rate. This will not only reduce your EMI payments but also simplify your loan repayment process.
Negotiate with your lender
If you are facing financial difficulties and are unable to pay your EMI payments, negotiate with your lender. They may offer you a lower interest rate, a longer loan tenure, or a moratorium period where you can temporarily pause your EMI payments.
Avoid prepayment charges
If you have surplus funds, consider prepaying your loan to reduce the outstanding amount and the interest charged on it. However, check with your lender if they charge any prepayment charges. Some lenders charge a penalty for prepaying the loan.
FAQ
Q1. What happens if I miss my EMI payment?
If you miss your EMI payment, your lender may charge you a late payment fee, and your credit score may be affected. Also, your lender may report your missed payment to credit bureaus, which can impact your creditworthiness in the future.
Q2. Can I prepay my loan at any time?
Yes, you can prepay your loan at any time. However, some lenders may charge a penalty for prepaying the loan. It is advisable to check with your lender regarding prepayment charges before making any prepayment.
Q3. Can I change my EMI amount?
Some lenders may allow you to change your EMI amount by altering the loan tenure or interest rate. However, changing the EMI amount may impact the total interest charged on the loan.
Q4. What is a moratorium period?
A moratorium period is a temporary period during which you can pause your EMI payments. The moratorium period is usually offered to borrowers who are facing financial difficulties due to unforeseen circumstances such as job loss, illness, or natural calamities.
Q5. Can I get a loan with a low credit score?
Getting a loan with a low credit score can be challenging. However, some lenders may offer loans to borrowers with a low credit score but at a higher interest rate. It is advisable to improve your credit score before applying for a loan to get a lower interest rate.
Conclusion
EMI is a convenient way to repay loans or make big purchases in easy monthly installments. Managing your EMI payments can be tricky, especially if you have multiple EMIs to pay each month. However, with proper planning and budgeting, you can manage your EMI payments wisely. Prioritize your payments, consolidate your loans, negotiate with your lender, and avoid prepayment charges. By following these tips, you can manage your EMI payments and repay your loans without any stress.
