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Tips for EMIs



Rajesh Goyal 


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Whether you can afford Loan / EMI ?



When you approach a Bank for loan, the first thing, they are interested is what is income?  This is needed by the banker / financer to know whether you will be able to repay the EMI.  They objectively look at your income to determine whether or not you can afford to pay the EMI.  Depending upon the type of loan bankers allow upto various percentage of the income as EMI. Mostly,  they will  allow the EMI to upto  35% to 40% of your gross monthly income for consumer / vehicle loan etc.  This is allowed even beyond 50% in case of Housing Loans.  However, there are many other factors which determine the maximum EMI you are likely to afford.  For example, a young newly married couple with both working (with no dependents and children) can afford higher EMI, then a single person with dependent parents. 

TIP :  (a)  If you are taking an education loan or home loan, you can  get tax benefits on interest / principal repayments.    Thus, you can afford higher EMI as your tax liability is reduced.  Moreover, in such cases you may like to stretch out these payments over time so that you can avail of tax benefits over a longer period.   In this way, your EMI too will be smaller.  However, in case of  personal loan or a vehicle loan such tax benefits are not available.

.(b) If you expect big pay hikes in the coming years, you may be able to afford higher EMIs at a later stage.  Thus, you can opt for flexi EMI scheme if the same are available






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Tips for Loans under EMI


(a)  Check if your bank / financer allows you to make early / pre-payment without a penalty clause.  If yes, you can  prepay part of the loan if and when you have some extra funds, and ask your banker to reschedule the EMI.  In such cases the EMI will reduce or you can opt for reduction in the tenure of the remaining loan period.  You will be able to save some costs in the shape of interest.  . In this case, it is obvious that the amount of your remaining EMIs won't remain the same if you leave the duration of your loan constant.


(b) Most of the loans are sanctioned under floating rate schemes.  Thus  interest rate keeps on changing.  As EMI is a function of the rate of interest, thus whenever there is change in rate of interest, the EMI amount is also likely to change.   Check with your bank, whether in cases where interest rates go up, you have the option of increasing  the tenure of the repayment or EMI has to be compulsorily increased. 


(c ) Some banks gives the borrower of flexi EMIs.  Under these schemes, the borrower is allowed to opt  for a loan where the EMI keeps increasing over the years. For example, let's say you have a 10 year loan. The EMI may remain constant for first  three years, then rises for the next three years and rises again for the last four years.  This type of option is suitable to youngsters who can not afford high EMI at present, but hopes that with rise in salaries, will be able to  afford higher EMIs at a later stage.




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