Maybe you plan to apply for a loan. Once you have decided that you need a loan to meet your goals, ask yourself the following questions:
- How much money do you need?
- Why do you need it or what is the purpose of getting a loan?
- How long will it take for you to repay the loan?
Choosing a future home and loan is an important life investment for every family, so this should be chosen carefully for decades to come. Keep reading to learn more.
What Is the EMI Calculator?
EMI Calculator is an informative installment loan calculator with more advanced functions whereby you can change the parameters yourself and project future monthly installments. This smart tool is designed based on the formula below.
EMI Formula
EMI = P * R * (1 + R/12)^n / ((1 + R/12)^n – 1)
P – Principal Loan Amount
R – Annual Interest Rate
n – No. of periods (years)
Example
Here is an example of how this formula is used in practice.
| Principal Loan Amount | $10,000,000 |
| Annual Interest Rate % | 10% |
| No. of periods (year) | 10 |
EMI = 10,000,000 * 10% * (1 + 10%/12)^(10*12) / ((1 + 10%/12)^(10 *12)-1)
EMI = 1,000,000 * (1 + 0.008333)^120 / ((1 + 0.008333)^120-1)
EMI = 1,000,000 * (1.008333)^120 / ((1.008333)^120-1)
EMI = 1,000,000 * (2.707 / (2.707-1))
EMI = 1,000,000 * (2.707 / 1.707)
EMI = 1,000,000 * 1.585808843
EMI = 1,585,808.843
What Should You Pay Attention to When It Comes to Taking Out a Loan?
Loan amount and maturity
When it comes to the loan amount, make sure the monthly installment does not burden your monthly budget (even in the case of unplanned expenses). The recommended medium-term indebtedness rate (1-5 years) should not exceed 10% of the monthly inflow.
Type of loan
Banks offer different types of loans today. Basically, they are all divided into cash (cash) and special-purpose loans – for the purchase of apartments, renovation of buildings, buying a new car, and so on.
Maturity
Not all loans have the same maturity. Usually, a home loan with a lower interest rate has the highest maturity, while cash loans have the shortest maturity in most cases. A longer term means a smaller loan installment, but it also means the cumulative amount you need to repay will be higher in the end.
Effective interest rate
This is a term that confuses many. Simply put, the effective interest rate represents the total cost of the loan and includes all the direct costs that the client incurs when being approved.
External factors
Housing loans are a good example of taking a loan at a custom interest rate alongside a fixed one. As the word itself says, that interest rate varies depending on some external factor, which the Bank can’t influence. This factor is called EURIBOR. Banks usually use a quarterly or six-month EURIBOR (nominal interest rate + EURIBOR) for variable interest rates.
Interest rates are generally lower than fixed ones since the user assumes the risk of the EURIBOR growth. The value is almost impossible to predict in the long run because it depends on many factors (macroeconomic trends, the situation in the financial sector, regulatory levies, etc.). Hence, you take the risk of growing this rate in the future.
Housing Loans and Their Risks
Housing loans turned out to be the most profitable way of working for investors. What’s more, it is often the only possibility for many citizens to buy a house. That’s because many people want to take it out as soon as possible even if the installment may be higher. If less interest is paid to banks, the total cost is lower.
On the other hand, committing to 30 years is risky, because it is not possible to see what kind of changes can happen. However, people have great needs, and the possibilities and the standard are small, and then they go on in the long run so that they can afford to repay the war. In other words, the problem is not the war, but the salary.
At the same time, interest rates on loans are still low, often lower than inflation, which means that they are negative. In the current situation, it pays out to take a loan, but in the short term, it will realistically return less money than it gets. It is different for long-term loans because interest rates will change.
Whoever buys an apartment now should consider a housing loan with a fixed interest rate, and several banks have such an offer and advertise interest rates lower than four percent. This type of loan is free from the risk of changes in interest rates. For several years now, banks have been granted a larger amount of cash loans than housing loans.
What If You Can’t Pay the Installment on Time?
There is no need to wait for the debt to become more than two installments. Although there is a possibility of declaring a delay in repayment banks are reluctant to do so when the client has already fallen into arrears.
Then the possibility of an agreement with the bank is drastically reduced (the chance for rescheduling or refinancing of liabilities). Neither the client nor the banks have an interest in initiating foreclosure proceedings. If they do not agree, a dispute for debt collection is initiated.
Once enrolled in the Credit Bureau, due to the delay in paying the installment, the indebted person “stays” there until he pays off the entire loan, and not just the disputed monthly debt. Only when he settles the entire loan and officially “breaks up” with the bank on that issue, a period of three years begins, after which the data on the “bad payer” will be deleted from the Credit Bureau. The problem is that bankers “forget” to delete those negative points from the credit file of their clients even after that deadline.
Thus, it is practically possible for someone to have a late payment from 2010 entered in the report, which he settled a long time ago, but he cannot fight it, since he took out a loan in the long run.
The misconception that it is enough to settle only one arrear, due to which they “blushed” in the Credit Bureau, many paid dearly by not being able to take out a new loan in the bank, because they were considered bad payers. And it only depends on the bank how it will assess its client – whether it is enough for it to have a “clean file” only in the last year, or in three, or, maybe, in the previous five.