In India, personal loans are frequently taken out to cover expenses through banks and other lending organisations such as NBFCs. People can avail of them for a range of purposes, including the purchase of consumer durables, medical emergencies, wedding expenses, home renovation, travel, vacation, debt consolidation, and more.
The loan amount for a personal loan is usually determined based on the applicant's income, credit score, and repayment capacity. The interest rates can vary from lender to lender and depend on factors such as the loan amount, loan tenure, and credit score.
Owing to various factors, the EMIs of these loans often tend to be higher. In this article, we discuss some simple tips to lower your EMI amount.
Pay a substantial amount as a down payment
While buying a new item, customers are often given the option to pay a small amount as a down payment and convert the remaining amount into EMIs. The down payment is the sum that the consumer pays up ahead when buying a specific product. Because the client bears a portion of the entire cost of the item, the amount that the customer must borrow as a loan is reduced. A loan's interest is computed based on the principal amount that the borrower has borrowed.
Therefore, making a sizable down payment is a sensible choice. This will not only enable you to lower your loan's EMI, but it will also enable you to make significant long-term savings.
Longer tenures make EMIs small
Your personal loan duration has an inverse relationship with your monthly payment. The EMI you must pay decreases with the increase in the length of the repayment period. Now, keep in mind that you might have to pay more in interest with a longer-term loan. If you want to save money on interest, you should pick a shorter term with higher EMIs.
To make the payments manageable, consider a longer term for your personal loan EMI if bigger EMIs would not fit in your monthly budget. Before applying for the loan, try to sketch out your monthly spending and schedule your EMI payments appropriately.
Consolidate your multiple loans
To satisfy your financial needs in the past, you may have needed to borrow money from several different lenders. Paying interest on a number of smaller loans might cause you to lose a significant amount of money each month.
Additionally, maintaining track of several separate EMI payments may be quite difficult, and you run the risk of accruing late penalties. You may avoid all of these issues by consolidating all of your existing debts with a personal loan. This makes it simple for you to manage your EMIs and pay off your obligations swiftly.
Part prepayment is a viable option
After you have made a set number of (usually 12) EMI repayments, most of the lenders provide you the opportunity to partially prepay a sizable amount of your loan. It operates by having you make a sizable payment that is deducted from the outstanding principal balance. When the outstanding principal amount falls, so does the interest amount, resulting in a lower EMI. By choosing a partial prepayment, you may shorten the loan term and lower your EMIs while also becoming debt-free sooner.
Manage your multiple loans wisely
There are some loans that have incredibly high-interest rates, such as credit card loans. Therefore, it is wise to pay off the credit card debt as soon as you can if you have taken out a personal loan, a house loan, and a credit card loan altogether.
You can contribute a small amount to the repayment of your other two debts while paying off the credit card loan. You can significantly reduce the high rate of interest that you would otherwise have to continue paying, had the loan been unpaid for a long period, by paying off the loan with the highest interest rate first.
You can consider purchasing loan protection insurance if you decide to take out a higher-value personal loan. The loan protection insurance provider will cover the remaining EMIs for you if you are unable to make a personal loan repayment because of untimely death, incapacity, or loss of employment. This will provide your family peace of mind and protect them from any consequent financial hardship.