In this digital age, availing of a loan of any form has become an effortless thing. The documentation has become minimal, and the process of sanction has become lightning fast. Available for your diverse needs, be it a home loan, car loan, education loan, or a home loan, there is an array of options available from all the banks. But the primary thing that needs to be considered before choosing one is the affordability factor.
Any loan you take has to be repaid over a stipulated period through installments inclusive of the interest at a particular rate. Loans are available at different rates based on various criteria from other private and public sector banks. Thorough research needs to be done before you finalize one and apply for it.
Let’s look at some of the factors that affect the EMI or the affordability of a loan to make an informed decision.
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Your Income
Your income plays a very crucial role in deciding the principal amount for the loan. Especially when it comes to unsecured loans like personal loans taken for vacations, weddings, etc., and income plays a crucial role in deciding your loan amount. Income becomes the primary factor on which the bank trusts you with the loan.
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Tenure of the loan
The loan’s term primarily is the period in which you will be repaying the loan. While you can choose from anything between months to 10 years, the tenure available is different for different banks and has a huge impact on the EMI that you will be paying. Shorter tenures mean more EMI and lesser interest, and longer terms mean smaller EMI’s but more significant interest.
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Interest rate
The rate at which the loan is being taken is called the rate of interest. The rates at which loans are given are different from bank to bank as per the regulations they function on, and hence it is essential to get your research right as it can make a big difference. The lesser the rate of interest, the lesser your EMI will be, thereby making the repayment easier.
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Repayment history
Having a good repayment history can be a great advantage in terms of easy approval and better interest rates. If you’re someone with a disciplined repayment history, you can often end up having a better and lower interest rate and a higher capital. Numerous debts and loans are not a concern, but the repayment pattern speaks a great deal about you and your finances.
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Your employment status and age
Alongside your income, your employment status plays quite an essential role in loans. Suppose you’re employed with an MNC or a reputed organization or are a self-employed individual with a stable business. In that case, the chances of you getting a loan is higher, as it automatically increases your credibility. Since the lender is also concerned with how many years you have left as a salaried or a working professional, your age also plays an essential role in availing a loan, and hence the EMI. If you’re ready for a larger down payment, then you’re likely to get a loan quickly.
Though many other factors affect the EMI, varying from person to person, these are the primary and most common factors. While we hope after reading this article, you’re more apparent on the jargons associated with a loan, and you can easily calculate the EMI before applying for a loan using the EMI calculator by CRED.
