Having a low personal loan EMI is every borrower’s dream and this is possible. Here are a few factors that have an impact on your personal loan EMI -
Credit Score and Rate of Interest
Credit score is a three digit numerical summary of an individual's credit report. A credit report includes details about the loans that have been availed previously, repayment of the same, and other financial habits.
If your credit score is high i.e. above 700 then it becomes easy for you to procure a loan at lower rates of interest and at a repayment tenure that is to your advantage. Lower the rate of interest then lower is the EMI payment to be made
EMI to be paid is directly proportional to the amount that is borrowed. Therefore, this should be factored in before availing a loan. If the loan amount is too high, it may be hard for you to repay your loan.
The term taken to repay the loan amount is inversely proportional to the EMI amount i.e. a lengthy tenure implies that the EMI amount to be paid each month is lower and vice versa.
However, taking a longer repayment term can also be a disadvantage as the overall interest paid increases.
Existing debt is not an issue as long as you don’t have too many loans running at the same time. Not only will it be hard for you to repay your EMI, lenders may also perceive you to be credit-hungry and refuse to lend to you.
Not to be confused with interest rate calculation, the type of interest chosen can have an impact on your EMI. If a floating interest rate is chosen then your interest rate may vary based on the RBI’s directives. On the other hand, a fixed rate will ensure the same interest rate throughout the repayment term.
The older you are, the harder it is to avail a loan and this is especially the case if you are closer to retirement age.
If you do not have a steady income then lenders will be wary of lending as they are unsure of your repayment ability. This is why even if you get a loan, the interest rate will be higher.