Prepay Whenever Possible (Part-Payment or Foreclosure) What is it? Prepayment refers to paying a portion or the entire loan amount before the scheduled tenure. How it saves: Personal loans often come with high-interest rates. Prepaying can help reduce the outstanding principal, which in turn reduces the interest you pay over the life of the loan. This can lead to significant savings. Tip: While some lenders charge a prepayment penalty, others don’t. Check your loan agreement and calculate if the savings in interest outweigh the penalty fees.
Opt for a Shorter Loan Tenure What is it? Loan tenure refers to the period over which you are required to repay the loan. How it saves: A shorter tenure increases your monthly EMI but reduces the total interest paid over time. While the EMIs may be slightly higher, you’ll save money by paying less interest. Tip: Choose the shortest tenure you can comfortably afford. Use an EMI calculator to balance between a manageable EMI and lower interest costs.
Make Bi-Weekly Payments What is it? Instead of making one monthly payment, split it into two bi-weekly payments. How it saves: This trick helps reduce the principal amount faster, cutting down on the overall interest. In India, some lenders may allow this or you can manually pay twice each month. Tip: Ensure there are no additional fees for making multiple payments in a month.
Refinance for a Lower Interest Rate What is it? Refinancing means taking out a new loan at a lower interest rate to pay off your current loan. How it saves: If interest rates have dropped or your credit score has improved since you took the loan, refinancing can help lower your EMI or loan tenure, saving money in the long run. Tip: Be mindful of processing fees and other costs associated with refinancing. Calculate if the savings outweigh these fees.
Round Up Your EMI Payments What is it? Rounding up means paying a little more than your required EMI. How it saves: Rounding up your payments by even a small amount can help reduce the principal faster. For instance, if your EMI is ₹9,700, you can round it up to ₹10,000. Over time, this can reduce your overall interest and shorten your loan tenure. Tip: Automate your payments to avoid missing out on this strategy.
Automate EMI Payments to Avoid Late Fees What is it? Set up automatic payments through your bank account to ensure your EMI is paid on time every month. How it saves: Late payments attract penalties and negatively affect your credit score. By automating your payments, you avoid late fees and maintain a good credit score, which can help you secure better loan terms in the future. Tip: Ensure sufficient balance in your account to avoid payment failures.
Negotiate with Your Lender What is it? Some lenders may be willing to lower your interest rate or restructure your loan under certain circumstances. How it saves: If you have a long history with the lender, a good repayment record, or a sudden financial difficulty, your lender may reduce your interest rate or offer a restructuring plan. Tip: Be proactive and reach out to your lender if you think this option might work for you.
Consolidate Debt with a Personal Loan What is it? If you have multiple debts (credit cards, other loans), you can consolidate them under one personal loan with a lower interest rate. How it saves: Debt consolidation simplifies your payments and can reduce your overall interest burden, especially if credit card debts are involved, as they tend to have much higher interest rates than personal loans. Tip: Make sure the new loan has better terms than your existing debts.
Avoid Top-Up Loans What is it? Some lenders offer the option to top up your existing loan when you need extra funds. How it saves: While tempting, top-up loans often come with high-interest rates or extend your loan tenure, increasing the total cost. Avoid them unless absolutely necessary. Tip: Explore alternative borrowing options or use your savings instead of opting for top-up loans.
Track Your Expenses and Create a Repayment Plan What is it? Budgeting involves monitoring your income and expenses and planning your loan repayment accordingly. How it saves: By keeping track of your spending, you can allocate extra funds toward paying off your personal loan. The faster you repay, the more interest you save. Tip: Use budgeting apps or set aside a fixed percentage of your monthly income for additional loan payments.
