People don’t take EMI seriously while purchasing things. During festivals, any sale, we see an attractive offer like buy led tv by a minimum deposit of $10, and remaining payment will be converted into installments and once folks buy led tv, every month repay the loan process started as well as EMI trap invite in saving account. Some part of salary goes to EMI & other household expenses. So a huge amount of EMI crashes good financial condition.
When an EMI trap starts
- You have multiple EMI
- Long-period loan
- When your loan amount over from your down payment
Taking products on EMI is not bad, how much amount you will pay for your product ( that item you want to buy by EMI) and how much remaining amount you will pay by installments. From here, decides that you are inviting an Emi trap or not.
The three main factors that I have faced in my life is the long duration & significant amount of loan to spread an Emi trap.
The long period of debt invites an EMI trap
How long the loan duration likewise interest rate increase. The middle, low-income families, always want fancy or durable items, and they purchase stuff by Emi cards or loans. The agreement of repaying a loan may be from 1 year to 5 years.
The future of everyone is indefinite. We can’t estimate what kind of other expenses include in our budget. For instance, A person buys a vehicle for 5 years on EMI agreement. In the future, children will grow, college fees or other child’s sports activity related expenses will bear, and a lot of tension will generate. In that case, an EMI trap puzzle borrowers on how to complete the loan process.
Multiple streams of loans can affect your wealth. Many populations pay 4 – 5 installments every month, which is bad for household life. Your family life may be rotated if you have a few income sources or multiple installments. Considering while taking a loan and track previous experience, how did you feel when you unable to pay the fee.
Over EMI amount from the down payment
Nowadays, alluring offers release during festivals, or sales that get 30% off on XYZ credit card, buy the smartphone by a minimum deposit, bring smart gadgets on low cash. Without any intended human compel to check-out things by small deposit money.
After, what happens? The major part of income deducted to fulfill monthly installments as well as interest rates charges. Moreover, the primary reason for falling in an EMI trap is people use a 90% – 99% amount of loan, or 5%-10% use their own money for acquiring things.
To demonstrate, I bought my car on EMI with a minimum down payment, so long term installments generate or 45% of cash deducted from my income to pay the loan every month. It would be best if you have half of the money own or half money should pay by the loan. So installment amount should never exceed your deposit amount.
According to my opinion – Emi is only to support a drowning straw. In other words, if anyone has 50% or 70% of their own money according to the price of a thing that they want to buy & require 30-50% money, then they take EMI.
The golden rule of taking EMI is that 50%, or above 50% money must of own or leftover cash from creditors. In detail, you are planning to buy a $1500 bike. Then you should have 50% – 70% of the money of your own according to the bike amount. Finally, 750$ – 900$ payment should of own or remaining cost ( $500 – $600) convert into installments.
In the final analysis, the amount of your EMI should low from the minimum deposit. How much minimum down payment you will send, then the loan duration as well as an interest rate increase. The best way to avoid the EMI trap is to pay the 60% or 70% amount as a down payment, or other amounts should loan.
What is your opinion regarding this article?