In order to achieve such objectives, such as purchasing a car or building a home, you may need additional financial assistance in the form of a loan. It is important to understand the components of the loan taking mechanism in the current scenario of rising interest rates. It will allow you to make a decision that is well-informed.
What is an EMI?
EMI stands for Equated Monthly Installments. It is the amount of money that is paid every month to the lender. It consists of two parts, i.e. the principal amount and interest on the principal amount divided throughout the tenure of the personal loan for each month. This balance shall be charged to the lender on a fixed date per month before the cumulative sum due in respect of the term of the loan is charged.
You can believe that the financial institution divides the principal and interest rate equally, but this is not the case. In the initial years, during the latter years of maturity, the interest component accrued is higher, the principal component is higher.
EMI and Your Money: Do you know why 30 to 40 percent of your monthly income is limited to your EMI? The answer is here. The amount of the loan given to you depends on different factors, such as your salary information, credentials, employer/business, years of experience, other revenue sources, etc.
The repayment schedule is structured in a way that allows EMI to pay just 40-50 percent of your salary.
It is limited by keeping in mind the following considerations:
- To cover the monthly costs, about 20-25 percent of your salary is invested.
- Around 10% of your income is spent on other loans, whether you have one in the future or if you use one.
- For investment purposes, about 20-25 percent of your salary is deducted.
- This leaves about 40-50 percent back, which is taken as your loan repayment potential.
Read Other Related Articles:
| Stay Away From Dual Rate Loans | |
| Defaulter in Personal Loan | |
| Consequences Of Being A Cosigner | Boost Credit Score |
| Difference Between a Personal Loan and Car Loan |
