โจ Pro Tip: Prioritize SIPs and recurring investments first โ then plan discretionary expenses. The goal is: Income โ Savings = Expenses
:contentReference[oaicite:2]{index=2}.
๐ Action: Track all spends over โน500/โน5,000 (based on income level). End-of-month summaries reveal spending leaks (e.g., gadgets, food delivery):contentReference[oaicite:3]{index=3}.
โจ Technique: Try โZero-Based Budgetingโ โ every expense must justify its place. Donโt just carry forward past habits:contentReference[oaicite:4]{index=4}.
โ ๏ธ Avoid: Relying on future windfalls to cover poor money habits. This leads to deeper debt:contentReference[oaicite:5]{index=5}.
โจ Pro Tip: Always calculate the effective interest rate โ not just monthly percentages:contentReference[oaicite:2]{index=2}.
๐ง Insight: A longer loan that you can comfortably repay is safer than a short-tenor one that strains cash flow:contentReference[oaicite:3]{index=3}.
โ ๏ธ Caution: Avoid missing EMIs without communication. Rescheduling is better than default:contentReference[oaicite:4]{index=4}.
=PMT(rate, nper, -loan)
=PMT(0.10/12, 60, -1000000)
Formula: Monthly Debt Obligations รท Monthly Income
Example: โน60,000 EMI รท โน1,50,000 income = 40%
Tip: If this exceeds 35โ40%, lenders consider it risky and may deny new loans or increase interest rate:contentReference[oaicite:2]{index=2}.
๐ Caution: Even joint accounts or guaranteed loans affect your score if they default:contentReference[oaicite:3]{index=3}.
โจ Tip: Use your FFCR to spot errors, fraud, or outdated loans and raise disputes if needed:contentReference[oaicite:4]{index=4}.
Interest rate stays constant for the entire tenure. EMIs remain fixed. Ideal when interest rates are low and stable.
Interest rate changes periodically with benchmark (like Repo/MCLR). EMI or tenure varies. Suits falling rate environment.
Loan against an owned propertyโs value (also called LAP). Property is pledged but not sold. Used for large funding needs.
Asset acquired in installments. Ownership transfers only after the final payment. Common in vehicle and durable financing.
User pays rent to use an asset. Ownership remains with lessor. At end of lease, asset is returned or lease is renewed.
EMI includes both interest and principal. Initial EMIs are interest-heavy. Over time, principal portion increases.
Old loan is replaced with a new loan (usually at lower rate or extended tenure). Common for home loans and business debt.
Extra payments made towards loan ahead of schedule. Reduces interest burden. Some loans may charge a penalty.
Interest-only payments made before full loan disbursement. Common in under-construction property financing.
A temporary pause in loan repayments due to special conditions (e.g., COVID). Interest still accrues during this period.
Loan secured against immovable property. Borrower retains ownership unless default occurs (e.g. home loan).
Movable asset is handed over to lender until loan is repaid (e.g. gold loan). Asset stays with lender as security.
Asset remains with borrower but lender has charge over it. Used in car loans, inventory finance. Repossession if defaulted.
Used to purchase a constructed or under-construction property. Long tenure (up to 30 years). Property documents are held as security:contentReference[oaicite:1]{index=1}.
Funds higher education. Repayment starts after course completion or when the student begins earning. Interest accumulates during study period.
Loan for two- or four-wheelers. Hypothecated to lender. Shorter term (3โ7 years). Interest increases with tenure. Vehicle is a depreciating asset.
For running a business. Based on working capital needs, turnover, and financial ratios. Can be secured or unsecured depending on the business profile.
Unsecured loan for any use (travel, wedding, emergency). High interest. Easy to get, but repayment discipline is critical.
Short-term credit with interest-free grace if paid fully. If not, revolving credit attracts 36%โ42% annualized interest. Very expensive if misused.
Allows spending above account balance up to a set limit. Interest charged only on the used amount and duration. Often linked to FD or asset security.
Secured loan using MF, shares, gold, or property. Loan amount is % of asset value. If asset falls in value, margin call may be raised.
Peer-to-peer loans through online platforms. Unsecured, high-risk lending between individuals. High interest rates to compensate for risk:contentReference[oaicite:2]{index=2}.
Effect: Lowers EMI but increases total interest paid
Example: โน3 lakh @ 7% for 3 yrs โ EMI = โน9,263
Extended to 5 yrs โ EMI = โน5,940
=PMT(0.07/12, 60, -300000)
Effect: Saves on interest without changing loan duration
Example: 7% rate โ EMI = โน9,263
New 5% rate โ EMI = โน5,994
=PMT(0.05/12, 36, -300000)
Effect: Lender agrees to reduce outstanding loan
Example: Loan reduced from โน3L to โน2L โ EMI = โน6,175
=PMT(0.07/12, 36, -200000)
Effect: Costlier loan replaced by cheaper one (e.g., credit card to personal loan)
Note: Refinance must maintain or improve the borrower’s debt servicing ratio
Loan Example: โน10,00,000 at 7% for 10 years (120 months)
Monthly EMI (using PMT): =PMT(0.07/12, 120, -1000000)
โ โน11,610
First Month Breakdown:
=PPMT(0.07/12, 1, 120, -1000000)
โ โน5,777=IPMT(0.07/12, 1, 120, -1000000)
โ โน5,833Total: โน5,777 (principal) + โน5,833 (interest) = โน11,610
Tip: Use Excel =PMT
and =NPER
to simulate scenarios
If EMI is too high or causing stress, repay the loan first. Relief from mental pressure may outweigh return opportunities.
Compare expected investment return (post-tax) with loan interest (post-tax).
Invest if ROI > loan rate. Repay if loan rate > ROI.
If windfall is small relative to the loan โ investing may make more sense.
If windfall is a large chunk of the loan, repayment leads to early debt freedom.
Investment grows over time. If left to compound at 12% while loan costs 7%, long-term wealth creation beats early repayment.
Equity investment may yield 12%, but comes with risk. If you need certainty, repaying loan offers guaranteed saving of interest outflow.
Example: Pay off 42% credit card first โ then 21% personal loan โ then 12% car loan โ finally 8% housing loan
Example: Clear โน30,000 credit card (smallest) first โ then โน1 lakh car loan โ then personal loan โ then home loan
Example: Pay off smallest loan first for quick win โ shift to highest interest loan โ continue by priority