Understanding Loan Parameters to Get a Better Deal
There are a number of loan options available to the public today. Everyday a new kind of loan is introduced in the market by rival financial institutions in order to attract new customers. Choosing the loan that is best suited to you and your requirements can be difficult and confusing, and that’s why understanding your loan parameters becomes a priority.
What are Loan Parameters?
So what is a loan parameter? It is the factor that is used by lenders to determine whether or not they should provide a loan to a borrower. These parameters might include a good credit score, the interest rates that you can manage and the EMI you can handle. Loans parameters differ according to loan types; for example doctor loan parameters need the borrower to have medical credentials and sufficient practitioner experience, whereas home loan parameters include having a steady, recurring income.
What You Should Do Before You Apply for a Loan?
Before you apply for a loan, be it a home loan, automobile loan, or personal loan, it is important for you to know the amount that you need, the interest rate, and the processing fee. If you want to make a prepayment on your loan, it is necessary to work out your loan agreement to know the amount you need to pay and the regularity of the payment.
You can use online calculators that will work out the pattern of your loan payments depending on the loan parameters. These calculators will show accurate details of the amortisation table, the timelines of your repayments, and total interest. Using these resources will most definitely help you with making smarter decisions and understanding loan parameters in a better way.
Below is a list of different factors that influence the loan you choose to take. Here you will learn the functionality of each parameter and how they affect your loan payment.
EMI stands for Equated Monthly Instalment. It refers to the money that you intend to pay every month until the loan is completely paid. If you’ve taken a fixed interest loan, the EMI will remain the same throughout your loan tenure. EMIs could vary, if you’ve opted for a loan with a floating interest rate.
Ratio of Interest and Principal Rates
Even though the EMI is a constant payment throughout your loan tenure, the interest rate and principal amount are not paid in a 50-50 ratio. Your loan provider gives you an amortisation table that will help you see how the interest and principal rates contribute to your EMI. In the initial years of paying your loan, the ratio between interest and principal can be quite skewed, but as time goes by, the principal amount gets higher and higher, peaking toward the end of the loan tenure. Non-banking financial companies like Bajaj Finserv provide special offers on your EMI payments, making repayments less of a drain on your resources.
What is a loan tenure?
The time taken to repay the loan amount in full is a loan tenure. The tenure can be changed according to market conditions. It can increase in case of an interest rate cut or periodic rate revision. The loan tenure for home loan and business loan parameters is usually long-term and for personal loan parameters it is short term.
How Does Interest Work in Loan Payments?
Here’s a well-known phenomenon: the longer your loan tenure, the higher the rate of interest. This happens because every time you prepay, the prepaid amount gets deducted from your principal amount. So even by paying small amounts at regular intervals, you can reduce your repayment tenure drastically. This also decreases your total interest component in the loan. You can apply for loans from financial institutions like Bajaj Finserv who offer home loan interest rates starting from 9.75%.
These loan parameters generally apply to a vast array of loans. The comparison parameters for personal loans are generated with all the factors above and include criteria based on whether the borrower is self-employed or salaried. This eligibility for personal loans differs slightly from bank to bank. The eligibility for home loans largely depends upon your score from the Credit Information Bureau (India) Limited (CIBIL) and whether or not you have a satisfactory flow of income.