EMI Calculator · Finance

Loan basics 101: How to keep your income to EMI’s ratio low

There are plenty of factors that are taken into consideration when you apply for a loan. However, not many are aware of the different factors that can affect your loan applicant, simply because there are too many to consider. One of the main factors is the EMI’s to income ratio. In most cases of a loan application, if the total EMI’s are high, there is a high chance that your loan application will be rejected.

So how can you reduce the chances of a loan rejection, keeping in mind the EMI to income ratio? Here are some suggestions that can assist you.

Managing your EMI’s

The first step to lowering your EMIs to income ratio is by managing your EMI’s. In the last few years, it is easy to get tempted into opting for different loans for different financial requirements. No doubt with loans such as two-wheeler loans, car loans or even a home loan, EMI’s will help you get what you want. But how do you manage it? The first step you should do is calculate your Emi’s to income ratio. You can always use the loan EMI calculator for this purpose. This ratio should not be over 50%. However, that does not mean you should also try for a loan amount that will touch this high of a ratio. You will need to consider your daily expenses along with the possibility of the different taxes you will need to pay. By reserving 20 to 30% for you income, for EMI’s you can ensure a low ratio, thus reducing your chances of a loan application rejection.

Borrow wisely

Debt may seem like the end of the world for you, but in reality, it help keeps you financial focused. However, as long as you ensure that the debt is something you can eventual manage, you should not be worried. In this case, when opting for a loan, you must borrow wisely. Match your debts to your income. If you discover you are spending more than what you earn or expect, then you need to make adjustments. If you need to borrow funds, ensure that you need to borrow it for realistic and practical purposes. Avoiding takes a loan to further invest in other financial products such as the stock market or other equities.

Plan the tenure of your loans

All loans work on a simple formula. The longer the repayment tenure, the more money you will end up paying in total. Depending on your financial profile, you can always opt for a high EMI over longer repayment tenure. Even funds from your bonuses or promotions will help you pay off a higher EMI, thus reducing your repayment tenure. Use the loan EMI calculator to calculate the ideal loan tenure that will suit your needs while helping you repay your loan off in ease.