Things you should know when taking EMI
Major economic shifts underway, rising interest rates, changing work cultures, urban migration patterns, and increasing property prices, this debate is more relevant than ever.In today’s world, most of us rely on loans to buy homes, vehicles, gadgets, or even fund education. That’s the main reason EMI becomes an important financial term to understand.As urban India continues to expand and real estate prices fluctuate, one fundamental question keeps haunting millennials and professionals.Whether you want to continue with renting a house or start paying EMIs to own a home? It’s not just a financial question. It’s a lifestyle decision that directly impacts your whole family with its flexibility, wealth building strategy, tax liability, and overall peace of mind. If you’re planning to borrow EMI for your home, vehicle or anything else or you are just curious about it, this blog will explain everything that you should know when taking EMI in a very simple manner.
What is EMI?Why is it necessary?
EMI means Equal Monthly Installment. EMIs are typically paid on a fixed date each month, starting from the month when loan is disbursed. They basically apply to Home Loans, Personal Loans, Education Loans,Auto/Car Loans,Consumer Loans (mobiles, home appliances).Credit Card EMI is a fixed monthly payment made by a borrower to a lender to repay a loan. Each EMI includes:
- Principal amount
- Interest charged by the lender
How is EMI Calculated?
EMI calculation basically depends on the principal P (the total amount borrowed) , Interest Rate R(The annual interest that is converted to monthly i.e, annual interest ÷ 12 ÷ 100) and Loan Tenure N(The duration in months).
EMI=(1+R)N−1P×R×(1+R)N
Things to consider when taking EMI
Loans are simple to obtain. Repaying it, on the other hand, might be difficult. It does not make sense to borrow if you don’t require the money so EMI is the best option for working professionals or residents who gone for rent which make buy whole property yours but there are several things to consider when taking EMI that are given below:
- Paying EMIs is essentially renting from the bank within 15 or 30 years, the property will be yours.
- EMIs are fixed throughout the tenure. Best for those who were well planned on a budget on fixed rate loans.
- EMI may increase or decrease based on market conditions. Can be cheaper in the long term but less predictable on floating rate loans.
- Higher loan and rate causes higher EMI to pay. Longer tenure may lead to low EMI. Prepayment of loan can reduce either EMI or loan tenure.
- Borrowing as much as you need. If the market goes down your monthly EMI can get you into pressure.
Keep up with your EMI payments on time.Even missing an EMI or delaying payment can have a significant influence on your credit score and limit your opportunity to obtain loans in later life.
- You get Section 80C benefit: up to ₹1.5L per annum on principal repayment.
- Section 24(b) allows deduction of up to ₹2L per annum on home loan interest.
- Joint home loans can double these benefits if both owners are earning.If these benefits continue or expand, buying could give you more tax relief compared to just claiming HRA.
Whereas paying EMI is a loan repayment for owning a property. With EMI, you eventually own the home,vehicles or appliances while renting provides flexibility but no ownership.Paying EMI can offer better long-term financial benefits because, with each payment, you build equity in the property. If you’re planning to stay in one place long-term, paying EMI may be more beneficial.By Knowing how it works empowers you to make smart financial choices, avoid debt traps, and manage your finances efficiently so planning your budget and future plans accordingly is very important.EMI is more than just a monthly payment.it’s a long-term commitment. So, Before signing any loan agreement, make sure you’ve calculated your EMI, budgeted accordingly, and understood all terms clearly.Lunazo homes, a leading house construction company in chennai bring better planning, and help you with every aspect of the building process with a better guidance in every process of your construction project. At Lunazo homes , you don’t just build a home, you build it with transparency, confidence, and complete control.