If you’re not wise about your loan choices, you will probably end up wasting a better part of your life repaying EMI loans. If you don’t plan out your expenses carefully, the EMIs you reimburse for loan payments can have a drastic effect on your monthly income and force you to live more frugally.

Far too often, people aren’t aware of the credit agreement and the amount that they should borrow. This lack of awareness results in poor decisions that can have a profound effect on their financial situation.

While loans are readily available, they typically have greater interest rates and higher EMIs. However, there are several ways to mitigate this risk by making informed decisions about your loan payments, and here are a few of them.

Making Informed Decisions About Your Loan Repayments

1. Decide the Loan Amount as per Your Requirement

Even though things have changed dramatically over the past few years, and trying to apply for a bank loan is no longer difficult, it would be a foolhardy decision to take out a loan without doing your research.

When applying for a loan, you must always procure the amount you need and not a penny more. If you feel that your line of credit is good, you might be tempted to obtain a higher loan amount simply because you have the convenience of doing so. However, this can make the loan repayment process unnecessarily burdensome.

2. Evaluate the Impact of an Increasing Interest Rate on Monthly Payments

Over the course of the last few years, interest rates have seen historic lows. While this ensures that loans are more affordable, increasing interest rates could still considerably affect your monthly finances.

For example, if you are a tenant and if your homeowner renews a £250,000 mortgage with a 5% interest rate by a further 2%, you might experience an increase of £300 per month in your payments. Understanding the effect of interest rate increments on your monthly premium today could prevent you from facing financial difficulties in the future.

3. Ensure Timely Loan Repayment

The benefit of having specified EMIs as a debt repayment solution is that you can lessen the burden of reimbursing the loan amount by trying to spread it over the next few months. If you are unable to repay even a single loan installment within the stipulated deadline, it will reflect poorly on your credit report.

To prevent this, ensure that the loan amount is repaid on time without fail. This will also let you avoid the burden of juggling EMI(s) for two consecutive months, along with sidestepping the penalty fee associated with late repayment of the EMI.

This also means that you will simplify your case when applying for a new loan in the future. f you reimburse all EMIs ahead of time, creditors will note your high credit score and provide lower rates of interest on future loans.

4. Pay Off Debt With Biweekly Payments

You also could reimburse your loans by paying for them every fortnight instead of at the end of every month. You will succeed in making the analog of one upfront fee per year.

When you pay off the loan with a fortnightly payment, you’re not supposed to see a profound shift in your daily expenses. However, you will see a considerable saving as you pre-process the loan amount over the years because you reduce the interest amount.

5. Adjust the Loan Tenure

The loan term is the duration in which the principal and the interest are to be repaid. By signing up for a lengthier loan term, you can dramatically reduce the monthly payment you have to pay.

While this might seem like a great alternative, the reality is that when you go for a lengthier loan term, you end up having to pay a great deal in interest when compared to a shorter loan.

Thus, it is ideal that you calculate your monthly expenses and find the best EMI option with the shortest loan term possible. This way, you can make it easier to reimburse the whole loan balance while also saving on reduced interest.

6. Revise the EMI Each Year

Each creditor has a unique set of rules and regulations with respect to the repayment of a loan. Several creditors allow the issuer to modify the payment of the EMI on a yearly basis. You can reap the benefits of this strategy and reactivate EMI’s annual payments according to your annual budget.

For instance, if you see an increase in your monthly salary or a sustained rise in your income through other sources, you can make the necessary calculations with a loan calculator and increase the EMI amount to repay the loan over a shorter term. As a general rule of thumb, per each 10% rise in your gross pay, you should boost your EMI payout by 5%.

While regular EMI reshuffling may seem like a nuisance, doing so can diminish your loan term considerably, thus allowing you to pay off the outstanding debts in a shorter period.

7. Consider the Yearly Loan Amount Over EMIs

Creditors use a quick calculation to estimate the optimum interest rate you pay when borrowing money. This calculation, which is your APR (annual percentage rate), is the interest rate plus other sums calculated for the whole year (annualized) rather than just the monthly rate levied on the loan amount. It is a financial sum expressed in the form of an annual rate.

Rather than just including the interest rate, the APR can include expenses that you are obliged to pay to avail of the loan. So, the APR gives you a better understanding of the full value of the loan as a percentage.

You can utilize this knowledge to make educated decisions, particularly when comparing several loan options together. It’s worth remembering that although a lower interest rate might sound attractive, the APR on it will provide you with a better idea of what you’re going to pay for the loan overall.


The above pointers can help you in making more informed decisions about the repayment of your loan amount. Making wise financial decisions will also help you repay the loan faster and pay lower EMIs. By guaranteeing that your EMIs are as minimal as they can be, you can escape any liability on your loans and establish a healthy credit profile too.