If you have a regular income, fixed EMIs might be easy to manage. With uneven cash flow due to working on contract or gigs, a flexible EMI may work better.
With the multiple expenses we normally juggle, funding big-ticket purchases in one go might seem daunting. To relieve you of the pressure, most merchants let you convert your purchases into EMIs through credit cards or digital BNPL (Buy Now, Pay Later) providers. In these cases, you can choose a fixed EMI structure with limited options. What if you need more flexibility? This is where a personal loan helps. Read on to learn how it differs from standard fixed EMIs, and which options work better for you.
How does a fixed EMI work?
A fixed EMI can either apply for purchases converted into EMIs, where you choose between fixed EMI payments over 6/9/12/18 months based on the merchant. Another possible way is through the fixed personal loan interest rate structure.
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Here, you have the flexibility to adjust the EMI by selecting the right tenure and loan amount. Once you do, the EMI remains the same throughout the tenure. Most banks, including IDFC FIRST Bank with its FIRSTmoney personal loan offers loans at a fixed interest rate. Plus, you can enjoy to following benefits:
- 100% digital application process
- Zero foreclosure charges
- Instant disbursal within 10 minutes
- Multiple on-demand loan facility
- Low processing fee starting at 0%[di1]
How does a flexible EMI work?
With personal loans, you also have the option to choose a floating interest rate for your loan. Under this structure, your EMIs fluctuate over time based on the market conditions, predominantly how the repo rate changes. [di2]
Impact of EMI on your finances over time
The EMI on your loan has a significant impact on your monthly budget throughout the loan period. Here are some of the main components affected:
- Cash flow stability
The EMI affects the flexibility of your monthly finances. Your routine expenses like rent, bills, savings, investments, etc., get affected significantly.
- Total interest outgo
EMI variations, even if small, compound over time. The higher the EMI, the closer you are to closing the loan. Hence, lower interest outgo and vice versa. FIRSTmoney personal loan by IDFC FIRST Bank offers low-interest rate loans starting at just 9.99% p.a. There are zero foreclosure charges, letting you save on interest if you decide to close the loan early.
- Savings
EMIs, if not planned well ahead, can reduce your savings ability or hinder your current savings. You want to structure them according to your current and future financial goals.
- Future borrowing capacity
How you manage your EMIs influences your credit score. It shows the future lenders your repayment discipline, which affects how they view you as a borrower.
- Lifestyle expenses
How you deal with your discretionary expenses might change with an ongoing EMI. You may have to make compromises if the finances are tight.
Fixed EMI vs flexible EMI: Tips to choose based on your income pattern
Having learned more about how fixed EMIs and flexible EMI loans work, you may wonder what would work best for you. Consider these tips to help you select a format that fits your income pattern:
- Match the EMI to income consistency
If you have a regular income, fixed EMIs might be easy to manage. With uneven cash flow due to working on contract or gigs, a flexible EMI may work better.
- Account for income fluctuations
Variable earnings might require you to adapt your repayment strategies. Flexible EMIs adjust better to such uneven months, as personal loan interest rates move with market conditions.
- Think long term
An EMI that feels manageable today should continue to do so throughout the loan tenure. So, consider your long-term income patterns and financial goals.
- Protect your liquidity and savings
The right EMI structure ensures repayments don’t make you break your emergency funds or derail your long-term savings.
- Consider transparent lending terms
Choose reliable lenders like FIRSTmoney by IDFC FIRST Bank that offer clear details about the EMI structures, interest rate, charges, and the qualifying loan amount.
- Choose what you are comfortable with[di3]
If you cope well with changing EMIs, the flexible EMIs may work for you. But if you do better with a fixed number every month, a fixed EMI setup is ideal.
Final words
One option is not necessarily better than the other when you consider choosing between a fixed and flexible EMI. They just work differently. You can make the choice based on what works better for your income, financial goals, expenses, and future responsibilities. Looking at it from a holistic and long-term perspective lets you choose a type of EMI structure that you can comfortably manage throughout the tenure.
