EMI (Equated Monthly Installment) is a fixed payment you make monthly to repay a loan, comprising both principal and interest.

Formula: EMI = [P × r × (1 + r)^n] / [(1 + r)^n - 1]

• P = Principal (loan amount)
• r = Monthly interest rate (annual ÷ 12 ÷ 100)
• n = Loan tenure in months

Interest is higher in early EMIs and decreases over time, while principal repayment increases.

Fixed Rate: EMI remains constant throughout the loan tenure. Better if you expect rates to rise or want payment certainty. Typically 1-2% higher than floating rates.

Floating Rate: EMI changes with market conditions and RBI rate changes. Better for long-term loans (15+ years) as small rate reductions save significantly. Risk: EMI can increase.

Recommendation: Choose fixed for peace of mind, floating for long-term loans where you can absorb EMI fluctuations.

Floating Home Loans: Zero prepayment penalty (RBI mandate). You can prepay anytime.

Fixed-Rate & Personal Loans: Prepayment penalty of 2-5% of outstanding amount may apply.

Reduce EMI or Tenure? Always choose to reduce tenure—it saves significantly more on interest. Example: ₹2 lakh prepayment on ₹25L loan can save ₹8-10L in interest if tenure reduces by 4-5 years.

• Late charges: ₹500-₹1,500 per missed EMI
• Penal interest: 1-2% extra per month on overdue amount
• Credit score drop: 50-100 points even for 30-day delay
• After 90 days: Loan becomes NPA (Non-Performing Asset)
• After 180 days: Banks may initiate recovery/legal action
• Credit report: Default stays for 7 years, affecting future loans

Solution: Contact your lender immediately. Most banks offer moratorium or restructuring options.

Ideal EMI Ratio (FOIR):

• 30-35% of income = Comfortable (✓ Recommended)
• 40-45% of income = Manageable but tight
• Above 50% = Risky and stressful

Example: If you earn ₹80,000/month, max EMI should be ₹28,000-32,000

Thumb Rule: Borrow no more than 3-4x annual income for home loans. Always maintain 6-12 months emergency fund before taking loans.

For Everyone: PAN Card (mandatory), Aadhaar, Address proof, Passport/Voter ID

Salaried: Last 3-6 months' salary slips, Form 16 (2 years), Bank statements (6-12 months), Job letter

Self-Employed: ITR (2-3 years), Audited financials, Bank statements (12-24 months), GST certificate

Home Loan: Property documents, Sale agreement, NOC from builder, Property tax receipts

Car/Bike Loan: Invoice from dealer, Insurance quotation

Tip: Many banks now accept digital KYC via Aadhaar e-verification and DigiLocker, reducing documentation time.

Score Ranges (300-900):

• 750-900: Instant approval, lowest rates, high loan amount
• 700-749: Good approval chances, standard rates
• 650-699: Moderate chances, 1-2% higher rates, lower loan amount
• Below 650: Very difficult, high rates, may need collateral

What Hurts Your Score: Late payments (-50-100 points), high credit card usage (>30%), too many loan applications

Improve Your Score: Pay all EMIs on time, keep credit utilization below 30%, maintain old cards active. Takes 6-12 months.

Check Free: www.cibil.com, paisabazaar.com, or your bank's app

Reducing Balance (Standard in India): Interest calculated on outstanding principal only. Decreases with each payment.

Flat Rate (Outdated): Interest calculated on original principal throughout loan tenure. Much more expensive.

Example Comparison (₹10L loan, 5 years, 10% rate):

• Reducing: EMI ₹21,247 | Total Interest ₹2,74,820
• Flat: EMI ₹20,833 | Total Interest ₹5,00,000

Key: 10% flat = ~18-19% reducing balance. Always ask your bank which method they use. All major banks now use only reducing balance (RBI mandate).

Home Loan: Section 80C (₹1.5L principal deduction) + Section 24(b) (₹2L interest deduction per year for self-occupied)

Education Loan: Section 80E (entire interest deductible, no limit, 8 years max)

Business Loan: Entire interest is fully tax-deductible as business expense

Personal/Car/Credit Card Loans: NO tax benefits for personal use. Deductible only if used for business purposes.

Tax Saving Example: ₹20L home loan at 9% saves ₹35,000-50,000 annually in taxes for high-income earners through combined 80C + 24(b) deductions.

Pro Tip: Keep all loan statements and interest certificates. Consult a CA to maximize benefits based on your situation.

Mandatory Insurance: Property insurance (home loans) + Vehicle insurance (car/bike loans) only

Optional (Despite Lender Pressure): Loan protection insurance, EMI protection plans are NOT mandatory. RBI rules allow you to refuse.

Problem with Loan Insurance: Expensive (0.5-1% of loan amount yearly), many exclusions, declining cover, poor claim settlement

Better Alternative: Buy a term life insurance policy (10-15x annual income) instead

• ₹1 Crore cover: ₹12,000-15,000/year (vs ₹40,000-50,000 for loan insurance)
• Covers all financial obligations, not just one loan
• Family gets full amount, can use freely

Recommendation: Skip loan insurance if you have adequate term + health insurance. If forced, you can cancel within 15 days for full refund.