Why Should I Use an EMI Calculator Before Borrowing?

The easy availability of loans through banks and NBFCs has made achieving your dreams much easier. Whether it be opening your own restaurant, owning a home, or planning a dream wedding, the easy availability of funding has helped transform dreams into reality. While loans facilitate such dream fulfillment, one must not forget that they are also financial commitments that require timely repayments. To ensure you repay the loan responsibly, you can rely on EMI calculators to estimate EMIs even before you apply for the loan. These digital tools are designed to help you borrow what you need, without overextending yourself to ensure you can repay the borrowed funds on time.
Reasons you should use an EMI calculator before borrowing
EMI calculators use the loan amount, tenure, and interest rate to ascertain your tentative EMIs. Here’s a list of reasons why you should use an EMI calculator before apply for a loan:
Borrow what you can afford
When applying for a loan, overborrowing can be tempting. For instance, if you are applying for a home loan, you may want to pay a minimum downpayment and have the loan cover the rest. However, doing so can strain your budget. EMI calculators help you understand the right loan amount according to your needs. In the case of a home loan, you can use the EMI calculator tool to run different scenarios with varied loan amounts and see how your EMI magnitudes change. Correlate this with your monthly budget to understand how much you can afford to borrow.
Decide on the right loan tenure
Choosing the loan tenure arbitrarily can either cost you excess interest payments or increase your monthly payment amount. An EMI calculator can help you choose the right loan tenure based on your circumstances, budget, and preference. With this digital tool, you can run varied tenure combinations to see how your total loan cost and EMI value change. If you anticipate an increase in income within the next few months, you can opt for a shorter tenure to become debt-free faster. However, if you prefer manageable EMIs, you can choose a longer loan tenure. Simply put, you can use EMI calculators to identify the right balance between the two.
Accurately calculate your monthly EMIs
EMI calculators use advanced algorithms to complete complex calculations in seconds with unmatched accuracy. Since these tools offer accurate EMI estimates, you can easily plan your budget. If the EMI estimate is more than your budget, you will probably need to borrow less or extend the tenure to ensure monthly payment obligations remain manageable.
Identify the best loan offer
Using an EMI calculator before borrowing is critical to compare various loan offers. Whether you are applying for a home loan, car loan, or personal loan, interest rates and terms vary from one lender to the next. You can compare the different interest rates quoted by lenders using an EMI calculator to see how your borrowing costs can be optimised. You can input the variables into an EMI calculator for a thorough comparative analysis. This helps you choose the best loan offer that aligns with your financial needs and saves you money in the long-run.
Optimise financial planning
Knowing your monthly repayment obligation even before you borrow lets you optimise your financial plan. For instance, let’s say, you are thinking about obtaining a car loan to upgrade from a two-wheeler to a four-wheeler. Understanding your monthly repayments before applying for the loan can help you assess if the loan is a financially viable option given your current income and budget. If you cannot afford the EMI amount on your current budget, you can consider applying for the loan at a later point or make changes in your budget like cutting back on shopping at online marketplaces and offline stores. This way, you also avoid the possibility of missing payments and defaulting on the loan.
Conclusion
Using EMI calculators before borrowing can help you clearly understand the financial commitment you are about to make. Running multiple simulations on the tool to help you decide the ideal tenure, pick the right loan offer, and determine the correct loan amount as per your financial capacity. In short, using an EMI calculator before applying for a loan enables thorough financial planning, reducing your chances of defaulting on the loan and tanking your credit score.