scorecardresearchStruggling with higher EMIs? Here’s all you need to know about step-up and step-down loans

Struggling with higher EMIs? Here’s all you need to know about step-up and step-down loans

Updated: 18 Jan 2023, 08:04 AM IST
TL;DR.
Step-up and step-down loans are loans that have variable EMIs spaced out over their duration. They offer flexibility, allowing borrowers to pay more when their income increases and less when it decreases.
The main advantage of a step-up or step-down loan is that it provides flexibility to the borrower.

The main advantage of a step-up or step-down loan is that it provides flexibility to the borrower.

Loans in India are used for a variety of purposes, from starting a business to buying a car. Banks and NBFCs (non-banking financial companies) provide loans with different interest rates and repayment periods. With proper research and comparison of available options, individuals can choose the best loan option suitable for their needs.

Out of the varied loan options available in India, step-up and step-down loans are among the common methods to borrow money. These loans are designed to help people who have difficulty obtaining a regular loan or need to borrow money for a short period of time. This type of loan is beneficial because it allows borrowers to easily adjust their payments as their income increases or decreases over time. Let us understand this in detail.

What are step-up and step-down loans?

Step-up loans have variable EMIs spaced out over the loans' terms. The EMIs for a step-up loan are low in the first few years of the loan's duration. As the years pass by, the EMI amount increases.

It is anticipated that the borrower would advance professionally, get raises, and receive promotions. Therefore, even when the EMI rises over time, it will continue to seem affordable to the borrower.

In the case of step-down loans, the EMI component decreases with each year of loan duration. According to this plan, the borrower pays a larger EMI during the first few years of the loan, and when the duration hits the halfway mark, the EMI starts to decline until the last year of the loan.

This plan is ideal for people who are nearing retirement. They can afford to pay a larger EMI during their initial years of employment and a reduced EMI as they get closer to retirement.

What are the benefits of step-up and step-down loans?

The main advantage of a step-up or step-down loan is that it provides flexibility to the borrower. It allows them to pay more when their income increases, and less when their income decreases. This can be especially helpful for those who experience seasonal fluctuations in their incomes.

Another advantage of a step-up or step-down loan is that it allows for easier access to credit. Since the loan is based on the borrower’s income and not their credit history, those with bad credit histories may still be able to obtain this type of loan. Additionally, this type of loan often has lower interest rates than a traditional loan which can make it more affordable.

In addition to the above benefits, step-up and step-down loans can also be used to finance large purchases such as cars and homes. This is because these loans are often offered at more competitive rates than traditional loans, meaning you can save money on the purchase price.

Overall, step-up and step-down loans can be a great option for those looking to manage their financial risk when taking out a loan. Therefore, if you are looking for a loan product that offers flexibility and the potential to save money, a step-up or step-down loan may be the right choice for you.

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First Published: 18 Jan 2023, 08:04 AM IST