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You may have taken a personal loan or may be thinking about taking one to help meet certain expenses. Whatever the reason may be – renovating your home, paying medical bills, meeting education fees, or planning a much-needed vacation – it’s essential that you have a solid repayment plan and budget smartly. This will help ensure that the Equated Monthly Instalments (EMIs) that you have to pay do not bog you down or put a financial strain. Here are some helpful ways to budget well when paying personal loan EMIs:
- Take only how much you need
If you are in the process of applying for a personal loan, it’s crucial that you only apply for an amount that you need to meet the expenses on hand. Depending on your personal loan eligibility, you may be eligible for a high amount and while it may be tempting to apply for it, you need to remember that at the end of the day you have to pay it back with interest. You should consider the EMI you will have to pay monthly and see if that is feasible given your current budget and expenses.
To calculate your personal loan EMI, you can make use of a personal loan EMI calculator. A personal loan calculator is a free online tool that helps you calculate the estimated EMI amount and allows you to assess whether that is an amount you can comfortably pay back.
- Cut down on discretionary expenses
While you cannot make any changes to your fixed expenses such as rent, utility bills, etc., you can cut down on your discretionary expenses such as eating out at restaurants, subscriptions to streaming platforms, gym and club memberships, shopping, and more. This is only for a limited amount of time until you pay back your loan in full.
While you can opt for a longer repayment tenure and pay small EMI amounts to avoid making any changes to your current budget and lifestyle, this will increase your total interest outgo. Hence, the cost of taking a personal loan would increase. Instead, by making some adjustments to your spending habits for some time, you can pay back your loan quicker and pay less interest.
- Balance out investing
While it is crucial to invest to build long-term wealth, your priority should be to pay back your personal loan. That’s because personal loans are high-interest loans. Since they are unsecured loans and do not require collateral from your end, lenders charge a higher personal loan interest rate as compared to secured loans to make up for the level of risk. As a rule of thumb, you should always prioritise paying back high-interest loans.
When you have extra money on you, for instance when you receive a bonus at work, you should use that to pay back your loan. There are circumstances when you can alternatively look to invest that money instead. For example, when an investment opportunity allows you to earn returns higher than the interest you have to pay on your loan.
Having a clear idea of what your personal loan EMI is going to look like beforehand is central to planning a smart budget to repay your loan easily. Hence, before you click on the personal loan apply button, make sure to use the personal loan EMI calculator.
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