Getting a personal loan at a low-interest rate and at best loan terms is not enough. If you want to benefit from a personal loan, you need to manage it wisely and plan the repayment strategy much before you take the loan. If you aren’t smart about repayments, you could be spending a better part of your life paying EMIs.
Follow this quick guide and make smart financial decisions regarding personal loan and its repayment.
1. Borrow only what you need
Create an excel sheet to track your income and expenses. Before deciding the loan amount, consider your contingencies and savings. Be realistic and borrow only what you need, even if you are eligible for a larger amount. The higher the loan amount, the higher is the interest component, and the larger is the EMI amount. So, when you take more than what you need, you increase your repayment burden.
2. Use the EMI calculator
There are plenty of easy-to-use EMI calculators available online, which can help you calculate the EMI you would be paying for a particular loan amount, tenure, and interest rate. Calculating the EMI gives you a clear picture of whether you can afford the personal loan. You can try different values of the loan amount, EMI, interest rate, and tenure to reach an EMI amount that suits you the best.
3. Choose your lender wisely
Before you settle on a lender:
- Do thorough research.
- Compare the quotes from various lenders based on the rate of interest, repayment options, fees, etc.
- Remember to always consider your repayment capacity before zeroing down on any of the lenders.
- Read the loan agreement carefully
Once you select the lender, don’t be in a rush to sign the loan agreement. Carefully assess the terms in the loan agreement. Some of the terms have the potential to compromise you.
5. Choose your tenure wisely
Consider your monthly income and expenses to figure out how much money is available to pay the EMI. If you can afford to pay larger EMIs, choose a shorter tenure because you save on interest and repay the loan faster. If you can’t afford large EMIs, go for a shorter tenure. Even though you’ll be paying more in interest, your EMIs will be smaller and hence fewer chances of a default.
6. Keep track of deadlines
EMI are usually monthly payments, which are scheduled on a particular date of the month. When the loan agreement is drafted, this date is communicated to you. Make sure you don’t miss even a single deadline. Defaulting on payments not only attracts a penalty but also hurts your credit score.
Set payment reminders or sign up for auto-payments that pulls the EMIs directly from your account every month on the scheduled date.
7. Prepay whenever possible
If you happen to get a bonus, raise in salary or windfall amount from some investments, use it to payoff or part-pay your loan. When you prepay, you save on interest, which you would have otherwise accumulated over the course of the loan tenure. This way, you also pay the borrowed amount faster.
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