5 Factors that Affect Your Personal Loan EMI

Last week we took a look at how your personal loan EMI is calculated but did you know that certain factors can significantly determine the amount you pay as EMI? 

Understanding these factors and their impact is important as it can help you cut down on your EMI and save more. 

It is important to note that if lenders believe you to be at risk of defaulting or delaying your repayments, then the loan, if disbursed, will be done at unfavorable terms. All other factors are based on this lending principle. 

Based on the above, let us take a look at the factors that have an impact on your personal loan EMI.

Major Factors that Influence Personal Loan EMI

• Loan Amount and Repayment Term 

A higher loan amount will imply a higher EMI amount. Whereas when it comes to the repayment term, longer the term, shorter is the EMI to be paid.

However, while you may be tempted to opt for a longer repayment period, the interest amount paid over time will definitely be higher and subsequently the overall amount being repaid.

Therefore, if you can afford to, opt for a shorter repayment term.

• Credit Score

The benefits of a high credit score cannot be underestimated, especially when it comes to EMIs. If you have a high credit score (above 750) then chances are that you will receive a personal loan at lower interest rates.

And if the interest rate imposed is low, then automatically the EMI amount to be paid will also be low. 

If your credit score is on the lower side, here are some tips to help you increase it.

• Existing Debt

While existing debt is not technically an issue, having too many loans running at the same time, especially unsecured loans can be a problem. Lenders will perceive you to be credit-hungry and will not offer loans easily.

Additionally, delayed payments can also significantly impact your credit score.

If your credit score is low, not only will lenders hesitate to disburse loans, the interest rate charged will also be high.

• Type of Interest Rate 

EMI payments are also determined by the type of interest rate chosen, such as fixed or floating interest rates. If a fixed interest rate is selected, then you will benefit from the same interest rate throughout the repayment term.

Floating interest rates are largely determined by the RBI and can vary during the repayment term. The main disadvantage is that, if the interest rate increases then you will end up paying a higher EMI amount.

• Your Age and Income

The older you are, especially over retirement age, greater is the risk of defaulting from the lender’s perspective due to uncertainty surrounding your income. This is why people above a certain age group, especially those who are retired, find it difficult to avail loans. Even if they do, it will be on unfavorable terms.

Similarly, if you have a steady income then you will be able to avail loans at lower interest rates which means your EMI amount will be relatively lower.

Did you know that certain factors can impact your EMI even during your EMI payment schedule such as –

• Change in Interest Rate or Loan Tenure

Although this is quite rare, if for some reason your repayment term has been extended or interest rate has been reduced, then this can impact your EMI payment as well. 

However, this will depend solely on the lender’s discretion. 

One such example was the moratorium period offered by lenders based on the RBI’s directive during the COVID pandemic in 2020. However, this can also impact your credit rating negatively which is why these options must be availed with caution.

In Conclusion

When it comes to personal loans, even a single delayed payment can impact your credit rating significantly which is why it is important to apply for a loan amount that can be repaid easily.

Additionally, factoring in all the components that can impact your EMI payments can also help you effortlessly repay your loans.

If you are looking for a personal loan that is versatile, can be availed easily, and offers flexible repayment terms, visit the website or download the app to apply today. Not only do our loans require minimal documentation, we also use a unique credit rating model to determine your eligibility.