Defaulting on loan repayments can be quite costly as you become liable to repay both the principal and the accumulated interest. To avoid defaulting on loans, you can always use an EMI calculator so that you know what your monthly EMI burden is going to be beforehand. However, when using such EMI calculators, there are eight common mistakes that you should avoid.
- Entering an Incorrect Loan Amount
The first mistake to avoid when using an EMI calculator for personal loans is entering the wrong loan amount (principal). This may happen if you initially plan to take a loan for a certain amount but later change your decision. It could also occur if you receive a loan amount that is different from your expectations due to inadequacies in your credit score. By entering the wrong loan amount, the EMI calculator will give you an inaccurate estimate of your EMI.
- Ignoring Additional Loan Charges
Another all-too-common mistake is overlooking additional (sometimes hidden) charges and fees. You may also fail to factor in late penalties that may result from defaults in EMIs. When you take a personal loan, apply online, and fail to pay the EMI dues, banks will charge you a late penalty, which does not show up on EMI calculators. On the other hand, some banks may even levy hidden charges like penalties on partial prepayments. Ignoring these when calculating your EMI is a mistake that needs to be avoided.
- Overlooking Interest Rate Variations
Interest rates may also change depending on regulatory changes by the government or even based on your individual credit profile. In some cases, borrowers with a higher credit score may be offered a lower interest rate. An EMI calculator for personal loans does not factor in these fluctuations in interest rates. So, you should ensure to consider these changes when using such a calculator.
- Choosing the Wrong Loan Tenure
Just like entering the wrong loan amount, entering the wrong loan tenure can also lead to inaccurate EMI calculations. This may happen if you opt for a personal loan and apply online for a particular loan tenure but are offered a different (sometimes shorter) loan tenure instead. In such cases, you may forget to update the loan tenure when calculating your EMIs.
- Not Accounting for Prepayments
Whenever you make partial prepayments on your personal loan, the principal amount is reduced. This means your EMI amount will also be reduced each month. So, if you do not consider the new loan amount after a partial prepayment, it may lead to drastic errors in your monthly EMIs, even when using an EMI calculator for personal loans.
- Using an Inaccurate EMI Calculator
This, too, is a common mistake because there is a plethora of EMI calculators available online. Some calculators provided by unknown websites may not be as accurate, and this could result in erroneous EMI calculations. Due to this, it is always advisable to only use online EMI calculators provided by prominent and trustworthy banks on their own websites. These native EMI calculators are usually more accurate and may be relied upon to get accurate EMI calculation values.
- Not Comparing Multiple Loan Offers
Yet another mistake to avoid when using an EMI calculator for personal loans is failing to compare loan offers from several banks. Different banks not only offer different amounts of loans but may also have different interest rates. In fact, if you compare loan offers from other banks, you may find that some offer a lower interest rate than others.
- Assuming Fixed EMIs for Variable Rate Loans
Personal loans are usually of two types, one of which is offered at a fixed interest rate. There are also other types of loans that are offered at a floating interest rate. Whenever you take a personal loan, apply online, and gain approval, you should be sure to read the fine print to know whether it is a variable-rate interest loan or a fixed interest loan. Making assumptions about these can lead to inaccuracies in EMI calculation, even with an EMI calculator.
Conclusion
In conclusion, the top eight mistakes to avoid when using an EMI calculator for personal loans include entering the wrong loan amount and loan tenure, ignoring the additional charges and fees, and assuming the type of interest offered. As a result, you must always be careful whenever you wish to take a personal loan, apply online and begin paying your EMIs every month.
