An EMI helps you in adjusting repayment of a loan or a credit over a period of time so that you don’t get overwhelmed by the amount. EMI stands for Equated Monthly Instalments and is one of the most popular forms of loan repayments right now. The principal amount that you have borrowed, along with the interest calculations for the tenure of the loan repayment, are divided into equal monthly instalments. With the option for EMI, anyone can now borrow a substantial amount of money and then repay it in easy instalments that don’t put a hole in the borrower’s’ pockets.
EMI calculations are therefore an important part of your debt management. If you can calculate the amount and tenure of your loan repayment, you are in an empowered position and can map out the future payments with ease. EMI calculations can be done by using an EMI Calculator which is available from a variety of aggregator portals. These calculators allow you to mix and match different combinations of principal amount, interest amount, tenure and interest rate so that you can optimize the process of repaying the loan to the best of your abilities.
Once you have calculated the best combination of principal, interest and tenure for your loan, the next step is to ensure that you are paying less interest, or that your overall tenure somehow gets reduced, once you start repaying the loan. The steps below will help you repay your EMIs smartly:
Some loans such as home loans are generally available at floating interest rates. This means that the interest on your home loan is not fixed and will change in the future as and when the bank announces rate changes. So, if there has been a rate cut during the repayment tenure, you will potentially be quoted a lower EMI figure going forward. You should not get swayed by the lower monthly figure, and continue to repay the old EMI amount, as this can reduce your overall repayment tenure.
In general, the loans you have taken will come with the clause for partial payments. Let’s say you just received a bonus in your work, or you receive a good return from your investments in the equity markets. Invest the additional cash into the loan so that the principal get reduced. Consequently, your overall interest amount will also get reduced as interest is calculated on the principal, and a lower principal translates to cutting down of the interest by some amount.
Enhance EMI amount
With time, if you find increase in your monthly income, you can opt for a higher EMI payment per month. This will allow you to wrap up the loan in a shorter duration. For instance, if you received a hike of 20% on your salary, and use this amount as top up on your existing EMI, you are potentially repaying the loan 20% faster than the normal duration. This is a significant point, as for a loan of 20 years’ duration, you can reduce repayment by more than 50 months, a good amount of time.
Some loans such as home loans or personal loans can be refinanced from a different lender. What this means is that you can transfer the whole loan to a new lender who is offering lower interest rate on the same amount. This can substantially reduce the loan burden on you. As you can see, there are some ways to speed up the process of repayment as well as reduce the overall costs of repayment if you act smartly during the repayment tenure. Therefore, be proactive while repaying loans and know your options in full.