When it comes to purchasing products, not everyone has the ability to pay in full. This is where EMI, or Equated Monthly Instalments, come into play. EMI is a payment option that allows the buyer to pay for their purchase in instalments over a period of time. These instalments can be made on a monthly, quarterly, or semi-annual basis, depending on the agreement between the buyer and seller.
Some people may be wary of EMI payments because they may not fully understand how it works or fear falling into a debt trap. In this article, we will discuss everything you need to know about EMI payments, including how they are calculated, what impacts your EMI amount, and how to manage your EMI payments responsibly.
CIBIL Score meaning
Before we dive into the world of EMI payments, it’s important to understand CIBIL score and what they mean. CIBIL, or Credit Information Bureau (India) Limited, is one of India’s leading credit bureaus. It collects financial information from banks and other financial institutions about loan repayments and credit card usage to create a credit report.
CIBIL scores range between 300 and 900, with a higher score indicating a better credit profile. A high CIBIL score makes it easier to get a loan or credit approval and may even result in lower interest rates. However, a low score may make it difficult to get approved for credit and may result in higher interest rates.
When you apply for an EMI payment plan, the seller may check your CIBIL score to assess your creditworthiness. If you have a good score, you may be able to negotiate better EMI terms and interest rates.
How EMI is calculated
EMI payments are calculated using three factors: principal amount, loan tenure, and interest rate. The principal amount is the total cost of the product or service you are purchasing. The loan tenure is the period over which you will make your EMI payments, which can range from a few months to several years, depending on the agreement with the seller. The interest rate is a percentage charged on top of the principal amount as a fee for borrowing money.
There are several EMI calculators available online that can help you estimate your EMI payments based on these factors. All you need to do is input the principal amount, loan tenure, and interest rate, and the calculator will estimate your monthly EMI payment.
What impacts your EMI amount
There are several factors that can impact your EMI amount, including the principal amount, loan tenure, interest rate, and any additional fees or charges.
The principal amount is the largest factor that affects your EMI amount. The higher the principal amount, the higher your EMI payment will be. Similarly, the longer the loan tenure, the lower your EMI payment will be, but the higher the total interest paid over the lifetime of the loan.
Interest rates also play a significant role in determining your EMI amount. Higher interest rates result in higher EMI payments, while lower interest rates result in lower EMI payments.
Some sellers may also charge additional fees or charges as part of the EMI payment plan. For example, some sellers may charge processing fees, pre-payment penalties, or late payment fees. These additional charges can increase the overall cost of your purchase and should be factored into your decision to use an EMI payment plan.
How to manage your EMI payments responsibly
While EMI payments can be a convenient way to purchase products, it’s important to manage your EMI payments responsibly to avoid falling into debt. Here are some tips to help you manage your EMI payments effectively:
- Determine the total cost of your purchase: Before you agree to an EMI payment plan, be sure to determine the total cost of your purchase, including any additional fees or charges. This will help you understand the true cost of your purchase and how much you will need to budget for your EMI payments.
- Set a budget: Once you know the cost of your purchase, create a budget to ensure you can afford your EMI payments. Be sure to factor in any other monthly expenses you may have, such as rent, utilities, and groceries.
- Choose a suitable EMI plan: When choosing an EMI payment plan, select a loan tenure that fits within your budget. A longer tenure may result in lower monthly payments but will increase the overall cost of your purchase, while a shorter tenure may result in higher monthly payments but will save you money in the long run.
- Don’t miss payments: To avoid late payment fees and damage to your credit score, be sure to make your EMI payments on time every month.
- Use credit responsibly: Using an EMI payment plan is a form of borrowing, so it’s important to use credit responsibly. Don’t take on more debt than you can afford, and avoid using EMI payments for frivolous purchases.
EMI payments can be a convenient way to purchase products and make big-ticket items more accessible. However, it’s important to understand how EMI payments work and manage them responsibly to avoid falling into debt. By understanding your CIBIL score, calculating your EMI payments, and setting a budget, you can make informed decisions and use EMI payments to your advantage.