Lower your EMI by following these simple tips: Personal Loan Hacks

When they borrow money, many people don't think about their options and end up paying very high interest rates when they could lower their EMI.

Lower your EMI by following these simple tips: Personal Loan Hacks
Lower your EMI by following these simple tips: Personal Loan Hacks

Personal loans are very helpful in times of cash crunch, whether it's for wedding expenses or the education of children. It makes it simple to get cash without having to pledge collateral. When you need money right away, a personal loan is the best choice because there is no need for collateral.

However, a lot of people who borrow money don't think about their options and end up paying very high interest rates. However, if they follow a few simple hacks, they can lower their EMI and ease their monthly burden. EMIs on personal loans can be reduced in the following ways: 

1. Make a significant down payment 

A down payment is a sum that borrowers pay when they buy a particular product. Paying the maximum amount as a down payment would be one way to reduce EMI in this case. This would help reduce the amount borrowed and reduce EMI.

To put things in perspective, if a person borrows Rs 10 lakhs over the course of ten years at an interest rate of 11%, pays a 15% down payment, and pays 3% processing fees, the EMI would be Rs 11,708.75.

The EMI, on the other hand, decreases to Rs 9,642.50 by simply increasing the amount of the down payment while maintaining other values the same. Additionally, you pay the bank less interest. 

2. The EMI amount of a personal loan is inversely proportional to the length of the loan. 
The EMI will be lower the longer the loan term because the amount will be spread out over a longer period of time. However, borrowers may be required to pay more in interest with a loan with a longer term here. Choose a shorter term with higher EMIs if you want to save money on interest.

Cost of Asset Loan Amount (Rs) Interest Rate (%) Down payment (Rs) Processing fees (Rs) EMI (Rs) Cash Needed (DP + PF) (Rs) Total interest paid (Rs)
Rs 10,00,000 8,50,000 11 1,50,000 25,500 11,469.47 1,75,500 15,51,836.4
Rs 10,00,001 8,50,000 11 3,00,000 21,000 9,642.50 3,21,000 14,78,100

3. Choose a step-down EMI plan: 
Under a step-down EMI plan, the borrower's EMI payments are reduced every year for the duration of the loan. In accordance with this plan, a significant portion of the loan's principal and interest must be repaid within the first few years of the repayment period. However, as the loan term increases, the EMIs decrease. 

A step-down EMI option eases the burden of loan repayment by significantly lowering the principal amount. This option is best for retirees because it allows them to pay back the loan while they still have sources of income.

4. Part prepayment
Most lenders offer the option of partial prepayment after the borrower has paid off a significant portion of the loan, typically after 12 EMI repayments. Borrowers pay a significant portion of the loan in this manner, which is deducted from the remaining principal balance. 

The interest amount decreases with the principal balance, resulting in a lower EMI. One can cut down on the loan term and EMIs by making a partial prepayment, and they can also get out of debt sooner.

One thing to keep in mind is that prepaying a loan incurs a fee from some lenders.

5. Balance Transfer 

Transfer makes it easy for borrowers to transfer the amount of their outstanding loan to a new lender. In addition to transferring the loan, the borrower can obtain a shorter loan repayment term and a lower interest rate, both of which contribute to a lower EMI. 

However, if you decide to take advantage of this facility, keep in mind the costs of loan foreclosure and loan processing fees in addition to the new lender's lower interest rate.