A personal loan can be leveraged to achieve any life goal or meet immediate financial necessities. But taking a personal loan means incurring additional expenses in interest payment. A higher interest rate might make repaying your home loan more expensive. With a higher interest rate, the amount of EMI you pay increases automatically.
There are a few methods by which you can lower your loan EMI. Some of the plans for reducing the cost of your loan are described below.
The Best Ways to Reduce EMI Burden on Personal Loans
1. Choose a personal loan with a high down payment
A down payment is an amount paid in advance by the borrower when taking a loan. The interest on the loan is calculated on the principal amount borrowed by the consumer. The more significant the loan amount, the more interest you’ll have to pay and the higher your EMI. Therefore, putting down a substantial down payment is a wise decision. This will reduce your loan’s EMI, and it will also save you money.
2. Pick a personal loan that has a more extended repayment period.
The repayment duration is inversely proportional to the EMI amount for a particular loan amount. Therefore, when you choose a longer loan term, the total amount owed is stretched out over time, resulting in a reduction of the monthly payment amount.
On the other hand, choosing a longer-term means that you will be charged interest on the outstanding debt for an extended period. So while extending the loan term lowers your EMI, it also increases the amount of interest paid.
3. Look around for the best personal loan deals by researching and comparing lenders.
Several non-banking financial companies (NBFCs) have taken over the lending sector in recent years, allowing people to get instant personal loans. As a consequence, borrowers should expect better offers on interest rates and other fees as banks and NBFCs compete more aggressively.
To lessen the EMI burden of a personal loan, it is recommended that you study and compare lenders based on what they are offering and then choose the best alternative. Getting a lower interest rate and other fees will help you save money on your loan EMI in the future.
4. Use your high credit score to get the lowest interest rate on a personal loan.
Borrowers with a high credit score (around 900) have many options for negotiating and getting a lower rate on a personal loan. Dealing with the lender is entirely based on your credit profile, and if your credit score is good, you may be able to get an instant personal loan like a prequalified personal loan.
Many consumers are unaware that lenders are willing to offer the lowest personal loan interest rate to applicants with a solid credit score and a responsible credit history. Lenders strive to retain such borrowers since it strengthens their customer base.
5. Go for a Step-Down EMI Plan.
Several banks and non-banking financing companies provide customers with the option of a Step-Down EMI Plan. Borrowers must pay a higher EMI at the start of the term if they take out a loan under this arrangement. Then, as the principal balance falls with each monthly payment, the EMI amount gradually decreases. In this way, you can save money on interest over your loan. This form of Flexi-EMI program is best suited for people nearing retirement as it is dependent on borrowers’ cash flow needs.
6. Carefully read the fine print
Customers are charged hidden costs in addition to the EMI by several financial institutions and lenders. The majority of these are nicely tucked away in a lengthy loan agreement that most clients never read.
Suppose you want to avoid paying a large unexpected cost. In that case, you should be aware of all additional charges, such as processing fees, late EMI penalties, or foreclosure charges. In addition, each lender will have its own set of terms and conditions listed in the loan agreement that you will be asked to sign when applying for a loan.
Before signing this loan agreement, read it attentively because it contains significant lending policies and charges. This will ensure that you do not have to pay any unexpected fees, which would raise the amount you return and, subsequently, your EMI.
7. Pay off the loans with the highest interest rate first.
Some loans, such as credit card loans, have incredibly high-interest rates. If you have a credit card loan, a personal loan, and a home loan, it is recommended that you pay off the credit card loan first. You can pay the minimum amount towards the repayment of your other two debts while paying off the credit card loan. Try repaying the loan that carries the highest interest rate first; you can save a lot of money in this way. You will have to pay a high-interest rate if the loan had stays unpaid for so long.
8. Make a Significant Down Payment When Purchasing a High-Priced Item
When buying a big-ticket consumer item, you pay a down payment. Therefore, when you make a substantial down payment and receive a credit on the balance, the loan amount burden on the borrower is automatically reduced. After all, the principal amount borrowed determines the loan’s interest rate.
If your principal amount is lower, the interest accumulation and EMI are immediately lowered. As a result, it makes sense to pay a more significant down payment and save money on the EMI and interest.
Listed above are some practical ways to reduce your EMI and loan burden. However, keep in mind to take the loan, you can pay or else your credit score may deteriorate.