Be a smart borrower; here are 5 ways to plan your EMI

Interest Rates | The interest rate may vary between 8 and 16 percent depending on your credit score. Also, one should compare rates at different financial institutions as you may get the benefit of getting a loan at a cheaper price.

The idea of buying a house or a car as soon as you start earning can be quite lucrative, thanks to a plethora of EMI options available in the market. With easy loan repayment options, people can fund their aspirations and up their standard of living.

However, calculating finances and EMIs can be a daunting task and if not planned properly, loans can turn into nightmares in no time as they take away a large chunk of your salary.

To plan effectively, you have to first assess what percentage of your salary will go towards EMI and how financially comfortable you’ll be in paying EMIs on time. It requires a concrete plan to pay-off your loans and attain financial freedom.

Here are 5 ways that can help you in paying EMIs without any stress

1. Scan your expenses: This has been said umpteen number of times but everything starts with saving wisely. You cannot ignore the ‘budget’ word, splurge and expect smooth repayments. Put yourself under a tight budget, after all, your goal is to get rid of the loans.
2. Rainy day savings: Don’t dent your emergency savings to pay EMIs. Eventualities can occur any time and you have to be prepared. Make sure you create a separate fund for EMIs.
3. Golden rule: As per experts, your EMIs, in case of home loans, should not be more than 40% of your income and repayments in case of personal loans should not be more than 10% of your salary.
4. Mutual funds: If you have additional money left, put it in a good mix of mutual funds. The amount generated from mutual funds can take off the burden to a large extent.
5. Balance transfer scheme: Struggling to pay your EMI? You can opt for restructuring. Contact your bank to adjust the interest rates, EMI and the loan repayment tenure based on your repayment capacity. You can also transfer your car loan to another bank which is ready to offer a lower interest rate under 'Balance Transfer Schemes'.

Repayment of loans on time is quite important as it affects your Cibil score, which can jeopardise your financial future. Good credit score ensures access to credit from banks and other financial institutions. This source of credit is generally cheaper than the credit availed from informal sources.