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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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A personal loan is a prudent option that can make your life convenient and easier. From funding medical emergencies to planning out a dream trip abroad to renovating your home, a personal loan allows you to meet all your non-speculative needs in a hassle-free manner. Moreover, as a personal loan is an unsecured credit option, it does not require you to provide any security to get approval.
However, a major thing that worries many is the repayment of the personal loan. It is necessary for you to pay your loan Equated Monthly Instalments (EMIs) timely. Failure to do so will lead to incurring a hefty penalty and your credit score will also take a hit. To avoid this situation, ensure to follow the measures listed below before you hit on the personal loan apply option.
1. Borrow according to your repayment potential
Never get carried away when determining the personal loan proceeds that you need to borrow. You may think it to be a good decision to borrow a huge amount and meet all your goals at once. But taking this step may accumulate a hefty debt and pull you towards financial instability. This, in turn, may lower your credit score drastically, making you ineligible for any loans in the future.
When availing the loan, ensure you are aware of the personal loan interest rate and EMI offered. To make an informed decision, use an online personal loan EMI calculator before applying for the loan. Using this calculator can allow you to figure out the suitable personal loan EMI, interest rate, and repayment tenure as per your repayment potential and cash inflows. With the calculator, you can also make instant adjustments to compute the figures as per your affordability. Once you are aware of these figures, you can approach the lender and accordingly negotiate to get the best deal to enjoy a stress-free personal loan experience.
2. Select your loan repayment tenure smartly
The next important step is to select your loan repayment tenure wisely. The EMIs that you pay for your loan are based on three important factors – the loan amount, rate of interest, and repayment tenure. While the bank determines your rate of interest depending on your credit score, you have the choice to adjust your loan proceeds and repayment tenure to derive an EMI as per your affordability. As mentioned above, you can take the help of an online personal loan EMI calculator to compute the figures instantly and accordingly make an informed decision.
Lenders generally offer a personal loan with repayment tenures of anywhere between one and five years. If you choose a higher repayment tenure, your personal loan EMI would fall. However, the issue with opting for a higher repayment tenure is that your overall interest cost on the loan would increase. So, you should choose your loan repayment tenure smartly as per your requirement and not unnecessarily opt for a higher tenure.
3. Prepare a contingency fund
When applying for a personal loan, it’s good to prepare a contingency fund. This acts as a backup during financial emergencies and allows you to avoid defaults and continue with your loan EMI with ease.
Ending note
Missing out on your personal loan EMI can result in a substantial financial setback. Not only does it increase your financial burden but even reduces your credit score. Thus, loan repayments must always be given high priority. For this, you must ensure to use an online personal loan EMI calculator to compute the preferred EMI and interest cost before you apply for the loan.
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