It sounds like you’re wondering whether to pay under the “term” or “EMI” (Equivalent Monthly Installment) structure. These terms are often associated with loans, especially in the context of loans to purchase items such as homes, cars, or other high-value items. Let’s break down the difference between the two:
Duties (payment based on tenure):
The term refers to the total length of the repayment period. When you choose to pay by term, you agree to repay the loan over a set period of time, which can range from a few months to several years, depending on the type of loan and the lender’s terms.
EMI (equivalent monthly installment):
EMI is a fixed monthly payment that includes both principal borrowed and accrued interest on the loan. EMI is spread over the life of the loan, making it easier for borrowers to manage their monthly budget.
Choosing between shelf life and EMI payments depends on a variety of factors, including your financial situation, preferences, and terms offered by the lender. Here are some considerations for each option:
Payment by expiry date:
Benefits:
May offer more flexibility in choosing the overall term of the loan.
Allows you to reduce your monthly payments by extending the shelf life, which can be useful when your current cash flow is limited.
Depending on the terms, you may have more time to adjust or change your payment schedule. Inconveniences:
Longer terms can lead to higher overall interest payments.
This may lead to prolonged financial commitment.
There may be less predictability in terms of monthly payments.
EMI (equivalent monthly installment):
Benefits:
Provides monthly payment prediction, making budgeting easier.
Lets you know exactly how much you need to pay each month. Often helps pay off loans faster than longer terms.
Inconveniences:
The monthly payments may be higher than the seniority-based plan.
May be less flexible in adjusting monthly payments.
When making a decision, it is important to consider your financial capabilities and goals. If you have a slightly higher monthly payment capacity and want to minimize your total interest payments, choosing an EMI could be a good choice. On the other hand, if you need to keep your monthly payment on a lower level to match your current financial situation, a seniority-based payment plan may be a better fit.
Always carefully review a loan’s terms and conditions, including interest rates, prepayment options, and any associated fees before making a decision. You should also consult with a financial advisor to make sure the choice is right for your overall financial strategy.
