News Reporter

EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay your loan. It is calculated using the formula: EMI = P x R x (1+R)^N / [(1+R)^N - 1], where P = Principal amount, R = Monthly interest rate (annual rate / 12 / 100), N = Number of monthly installments. Each EMI consists of both principal and interest components. In the early years, the interest component is higher, and it gradually decreases over time.

Most banks offer the best interest rates to borrowers with a CIBIL score of 750 or above. A score between 700-750 will still get you approved but at slightly higher rates. Below 650, you may face difficulty getting loans from banks and might need to approach NBFCs. To improve your score: pay all bills on time, keep credit utilization below 30%, maintain a good mix of secured and unsecured loans, and avoid multiple loan applications in a short period.

Floating rate loans are linked to RBI's repo rate and change when the benchmark changes. Fixed rate loans have a set rate for the entire tenure (or a fixed period). In a falling interest rate environment, floating is better. In a rising rate environment, fixed is better. Currently (2025-26), most home loans in India are floating rate. Personal loans and car loans often have fixed rates. Generally, floating rates are 0.5-1% lower than fixed rates initially.

1) Prepay whenever possible - even small amounts reduce principal and save interest. 2) Increase EMI annually by 5-10% to reduce tenure. 3) Transfer your loan to a bank offering lower rates (balance transfer). 4) Negotiate with your bank for a rate cut. 5) Choose shorter tenure - a 15-year loan costs significantly less than a 30-year loan. 6) Make a larger down payment to reduce the loan amount.

Home Loan: Interest up to ₹2,00,000 deduction under Section 24(b). Principal repayment up to ₹1,50,000 under Section 80C. Additional ₹50,000 under Section 80EEA for first-time buyers (if applicable). Education Loan: Entire interest paid is deductible under Section 80E for up to 8 years. Personal/Car Loans: No direct tax benefit unless used for business or house renovation purposes.

Flat rate calculates interest on the original loan amount throughout the tenure. Reducing balance (or diminishing balance) calculates interest on the outstanding principal after each payment. A 10% flat rate is roughly equivalent to a 17-19% reducing balance rate. Always compare loans on a reducing balance basis. Banks are required by RBI to quote rates on reducing balance. NBFCs sometimes advertise flat rates which appear lower but are actually much more expensive.