Can Your Personal Loan EMI Change During the Loan Tenure?

When a Personal Loan is issued at a fixed loan interest rate, the Equated Monthly Instalments (EMIs) often stay the same during the repayment period. However, the EMI amount may change over the tenure of the loan in specific situations. These may include partial principal repayment or a Personal Loan with a variable interest rate.

In this blog post, we shall discuss the various circumstances where your Personal Loan EMI can fluctuate during your loan repayment period. Understanding this will help you to make informed financial decisions and manage your debts smartly.

When and Why Your Monthly EMI Changes?

Here are all the possible circumstances under which your EMI amount can change during the tenure:

Floating Interest Rate Fluctuations

Many lenders provide a Personal Loan with a floating interest rate. In such a case, any change in the benchmark rate, such as the RBI (Reserve Bank of India) repo rate, may result in fluctuations in your EMI. Your EMIs can increase if the interest rates rise, whereas EMIs decrease when rates decline.

Partial Prepayment of the Loan

If you do part prepayment of your Personal Loan (repay a part of your principal amount early), your EMI may be recalculated. You can choose to reduce your monthly Personal Loan EMI by keeping the same tenure as before. Another option is to keep the EMI constant and opt for a shorter tenure to reduce your total interest.

Loan Tenure Modification

Your Personal Loan EMI will automatically change if you ask your lender to shorten or extend the Personal Loan tenure. Choosing a longer tenure will lower the monthly repayment EMI; however, it increases the total interest. On the other hand, a shorter tenure increases the EMI, helping you close the loan quickly.

Loan Restructuring or Moratorium

Your lender may restructure your debt in situations like financial hardship, unemployment, or regulatory relief (like the COVID-19 moratorium). This can include lowering or stopping EMIs for some time to ease your financial burden , then recalculating payments afterwards.

Balance Transfer or Top-up Loan

Your Personal Loan EMI may vary depending on the new rate and tenure when you transfer your loan balance to a different lender. The new lender may offer better terms or a lower interest rate. In the same way, taking out a top-up loan raises your total amount owed. This causes your monthly payments to increase when it is recalculated based on the revised loan balance.

Changes in Income or Repayment Capacity

If your income increases or your financial condition improves, you can repay your Personal Loan faster by paying higher EMIs on a shorter tenure. This also helps to reduce the total interest paid. However, if your income drops or you have to pay for unexpected expenses, your bank or financial institution may allow you to extend the loan tenure. This results in decreased monthly payments. 

In both situations, the revised loan terms and interest rate will impact your Personal Loan EMI amount.

Additional Charges and Penalties

Usually, the processing fees, late payment penalties, or any other extra charges are included in the outstanding loan amount. This will increase your EMI payments slightly when recalculated by the lender.

Tips to Manage Personal Loan EMI Fluctuations Effectively

Here are useful tips to manage your Personal Loan EMI payments smartly:

• Always be aware of the recent monetary policy changes announced by the RBI, as they influence loan rates.
• Before changing your loan tenure or choosing prepayments, use an online EMI calculator to determine the new amount.
• Save 3-6 months' worth of EMI amount. This will help you to pay monthly instalments even during unexpected income loss or with additional expenses.
• Use auto-debit services to pay your loan EMIs on time, even when the amount changes slightly.
• Communicate with your lender as soon as possible if you expect any financial challenges, so they can look into restructuring possibilities.
• Taking multiple top-up loans will result in higher EMI payments and interest costs. In this case, combine all your debts into one to reduce your overall cost.
• Keep a check on the loan terms, and review your loan account statements regularly. This keeps you informed about any changes to loan EMIs, processing costs, or penalties that may be imposed.
• For lower EMIs or short loan tenure, use prepayments based on your financial condition. You can plan for optimal prepayments with the help of Personal Loan calculators.

Read Also: Guide to Personal Loan Scams in India

To Conclude

Generally, Personal Loan EMIs remain fixed. However, they can change due to certain factors, such as prepayments, interest rate changes, tenure modifications, and balance transfers. Understanding the reasons for changes in EMIs will help you manage your Personal Loan more effectively. 

You can ensure a smooth borrowing experience by staying aware of the factors influencing your EMIs.  Modify your repayment schedule, transfer the loan to a more favourable rate, or use a Personal Loan EMI calculator for a better loan experience.

Looking for instant funds? Connect with Poonawalla Fincorp and get a quick approval for a Personal Loan. Enjoy flexible EMIs and easy repayment terms. Contact us today for more details!

FAQs

What can be the impact of changing my salary account linked to the loan on EMI payments?

While skipping payments can result in penalties, switching your primary account or salary account for EMI auto-debit generally does not affect the EMI.

Does my EMI change if my tax benefits change?

No, even though they may have an impact on your overall financial planning, tax deductions under Section 80C or 24(b) do not change your EMI.

What can be the impact of changes in the lender's policy on processing fees on my EMI?

If the lender changes processing or service charges mid-tenure and adds them to the outstanding balance, the EMI may slightly increase.

Do loans with flexible payback plans have different EMIs?

Flexi Personal Loans are available from some lenders. The monthly EMIs can change based on the principal amount paid or the amount taken out of an overdraft account.

What can be the impact on EMIs if my credit score improves?

Only balance transfers or prepayments can affect EMIs; EMI is unaffected by improvements in credit scores after the loan approval.

Can my EMI change if I change co-borrowers?

Your EMI may be recalculated if the lender restructures the loan due to a change in the co-borrower. However, it does not change automatically.