What is EMI per lakh
EMI per lakh is a metric that helps borrowers understand the cost of borrowing for every one lakh rupees of the loan amount. It is essentially the amount you will pay as EMI for a loan of one lakh rupees over a specific tenure. This metric is crucial for evaluating the affordability of a home loan and comparing different loan offers from various lenders.
Understanding home loan EMI
A home loan Equated Monthly Instalments (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to repay both the principal and interest over the course of a predetermined loan tenure. This method of loan repayment is common for various types of loans, including home loans.
The EMI comprises two components; principal repayment and interest payment. The proportion of each component varies over the loan tenure. In the early stages of the loan, a larger portion of the EMI goes towards interest, and as the loan progresses, a greater proportion is allocated to the principal amount.
To help you better manage your finances, using a home loan EMI calculator can be extremely beneficial. This tool allows you to estimate your monthly payments based on different loan amounts, interest rates, and tenures, helping you plan your budget effectively.
Manual formula to calculate EMI per lakh
The EMI per lakh can be calculated using the formula:
EMI per lakh = (EMI/Loan amount) x 100,000
Where:
- EMI is the Equated Monthly instalments.
- Loan Amount is the total amount borrowed.
For example, if the EMI for a Rs. 20 lakh loan is Rs. 16,973, the EMI per lakh would be:
EMI per lakh = (16,973/20,00,000) × 100,000 = Rs. 848.65
Significance of calculating EMI per lakh
- Affordability comparison:
EMI per lakh provides a standardised measure to compare the affordability of loans from different lenders. A lower EMI per lakh indicates a more cost-effective loan. - Budgeting:
Understanding the EMI per lakh helps borrowers plan their budgets more effectively. It allows them to assess the impact of a loan on their monthly finances based on the loan amount they intend to borrow. - Interest rate impact:
A higher EMI per lakh may suggest a higher interest burden, prompting borrowers to negotiate for a lower interest rate or explore alternative loan options. - Tenure consideration:
Home buyers can adjust the tenure of the loan to achieve a comfortable EMI per lakh. A longer tenure may reduce the EMI but increase the overall interest outgo, while a shorter tenure may have a higher EMI but lower interest costs.
6 tips to reduce interest rate on EMI per lakh
Here are six tips to reduce the interest rate on your EMI per lakh:
- Improve your credit score: A higher credit score can help you secure lower interest rates.
- Opt for a shorter tenure: Shorter loan tenures often come with lower interest rates.
- Make a larger down payment: A higher down payment reduces the loan amount, leading to lower interest.
- Compare lenders: Shop around and compare offers from different lenders.
- Negotiate with your lender: Sometimes, lenders are open to negotiation, especially if you have a good relationship.
- Consider balance transfer: Transfer your loan to a lender offering a lower interest rate.
These tips can help you manage your home loan more efficiently.
Understanding the concept of EMI per lakh is a valuable tool for home buyers. It helps borrowers to make informed decisions, assess the affordability of their loan, and choose the most suitable option based on their financial capabilities. As you embark on your homeownership journey, consider the EMI per lakh as a guiding metric to navigate the complex landscape of home loans in India.
