It is about EMI shopping. There are many people among us who buy what we need and what we don’t have because of the temptations of advertisements and can only be avoided. The main reason for this is the monthly installments (EMI) offers and benefits.
What is EMI?
EMI stands for Equated Monthly Installment. EMI is a method of repaying the loan amount in fixed monthly installments. The feature is that repaying the loan under EMI mode is easier than repaying the loan amount together. The EMI installment is determined based on the loan amount, the interest rate charged and the repayment period. Meanwhile, let’s look at five factors to consider while taking an EMI loan.
One’s income should cover all one’s needs. So EMI allocation should also be considered seriously while considering the family budget. The family budget can go awry if you take on non-repayable EMIs along with other expenses. If any EMI defaults, it will also adversely affect the credit score. So, while preparing the monthly family budget, consider the EMI installments as well.
Likewise, more than 50 percent of the monthly income goes towards EMI loan repayment, which can push you into debt in the future. So take loans only for essential things. Don’t take a loan without thinking about the interest. And don’t take more loans than you need. All these are factors that can gradually push you into debt trap.
Date of Repayment
Most of the financial institutions that offer loans under EMI mode require auto-debit (automatic withdrawal) facility in the loan account. So it is a trap if you do not choose the appropriate repayment date (due date). For example suppose you get paid on the 5th of every month. But suppose your loan’s auto-debit date is the third. If you don’t keep the amount for EMI payment in the account, which is so many days after getting a salary, it will work.
Long Term EMI
Extending the loan repayment period to keep the EMI low is not a good idea. Because more money will be wasted from you in interest. For example, the EMI of a loan of Rs 50,000 for 12 months at 12 percent interest would be Rs 4,442. That means the total repayment is Rs.53,309. 3,309 was spent as interest. But on a loan of Rs 50,000 for 24 months at 12 percent interest, the EMI amount is Rs 2,354. That means the total repayment is Rs.56,488. 6,488 going towards interest.
Many people take loans without reading the terms and conditions in the hope of getting the EMI. Most financial institutions charge customers other charges (such as processing fees) in addition to interest. There are also hidden charges in the form of convenience fees. So before taking the loan, it is useful to read the loan agreement.
In short, don’t jump into everything thinking that you can get a loan on EMI terms. Pay attention to the above mentioned things to avoid financial burden later. Be careful to take loans only when necessary.