Don't make this mistake when taking out a Personal Loan; half your salary will disappear as soon as it hits your account, and you won't even realize it!

When taking out a personal loan, people often focus only on low EMIs, but they overlook the loan tenure and the total interest. This mistake gradually takes a heavy toll on their salary. Learn in this article how to choose the right EMI tenure, which mistakes can trap you in a debt cycle, and how to take out a loan wisely.
Don't make this mistake when taking out a Personal Loan; half your salary will disappear as soon as it hits your account, and you won't even realize it!

These days, taking out a personal loan has become incredibly easy. Mobile apps, banks, and NBFCs are offering loans in minutes. Whether it's for unexpected medical expenses, wedding costs, or any other need, people take out personal loans without much thought. But the real trouble begins after the loan is disbursed, when the monthly EMI starts eating up a large chunk of their salary. People often make mistakes when choosing the EMI tenure.

Most people only look at the monthly payment when choosing an EMI. They don't understand how the EMI tenure and interest rate together determine the total amount of money they will pay to the bank. A longer tenure means you pay more interest, and if you need to take out another loan in a few years, half, or sometimes even more than half, of your salary will go towards EMIs.

The EMI tenure determines your real trouble

The biggest decision when deciding on an EMI is how long the loan tenure should be. Lured by the prospect of smaller monthly payments, people choose longer tenures. This makes the monthly burden seem lighter, but the total interest paid becomes very high.

How to choose the right EMI tenure?

The right EMI balances both your salary and expenses. A simple rule is that your total EMIs should not exceed 30-35% of your monthly income. If your salary is ₹50,000, then the total of all your loan EMIs should not exceed ₹15,000-₹18,000. This will allow you to comfortably manage other expenses, savings, and emergency funds. Half your salary will disappear, and you won't even realize it.

If your EMIs are high, the combined amount of your EMIs, including house rent or home loan EMI, car EMI, children's school fees, and household expenses, can consume half or even more than half of your salary. In such a situation, you won't even realize how half your salary disappears as soon as you receive it.

How does the lure of low EMIs lead to significant losses?

Seeing a low EMI gives a sense of relief. It seems like the budget will be manageable. But in the long run, this very EMI hinders your financial growth. Long-term means:

• Higher total interest
• Longer debt period
• Less savings for other needs

Many people keep paying personal loan EMIs for 6-7 years and are forced to take out a new loan during that time. This is called the debt cycle.

Why is understanding EMI calculation important?

The EMI formula seems difficult for ordinary people, so they rely on the EMI displayed by the bank or app. But you should definitely check the total repayment amount. Always consider these three factors together:

• Loan amount
• Interest rate
• Loan tenure

It is crucial to compare EMIs and total interest for different tenures using an EMI calculator.

What are the 5 biggest mistakes people make when deciding on EMIs?

• Choosing the tenure based solely on the EMI amount
• Not comparing the total interest
• Taking on a higher EMI hoping for a salary increase
• Not considering the combined EMIs of multiple loans
• Not having any savings for emergency expenses

The result of these mistakes is that your salary is gone as soon as you receive it every month.

What do banks and apps not tell you?

When offering loans, banks highlight the EMI, not the total interest. Many apps show longer tenures so that the EMI seems lower, encouraging you to take out the loan quickly. This is why it is essential to carefully read the offer letter and repayment schedule before taking out a loan. The EMI may seem small, but the total repayment can be shocking. Easy Tips for Taking a Personal Loan Wisely

If taking a personal loan is necessary, be sure to follow these tips:

• Plan to pay off the loan as quickly as possible
• Make prepayments with bonuses or extra income
• Don't keep the EMI tenure unnecessarily long
• Review your budget every year
• This will prevent the loan from becoming a burden.

Conclusion

A personal loan is not inherently bad, but choosing the EMI tenure without careful consideration is the biggest mistake. Taking a loan simply based on low EMIs can gradually harm your financial health. If the right balance is struck between EMI, tenure, and total interest, a personal loan can be a helpful tool, not a burden.

Frequently Asked Questions (FAQs)

1. What is EMI?
EMI is the fixed amount paid every month to repay the loan.

2. What is the ideal tenure for a personal loan?
A tenure of 2-4 years is considered ideal, depending on your income and expenses.

3. Is a long-term loan harmful?
Yes, it results in paying more total interest.

4. What percentage of salary should the EMI be?
Usually, it should not exceed 30-35%.

5. Is keeping the EMI low always the right approach?
No, a lower EMI may be associated with higher interest payments.