Simple Ways to Reduce Your Loan EMI

Down payment is the amount the customer pays upfront at the time of purchase of the respective item. Since a part of the total price of the item is borne by the customer, the amount that the customer will have to borrow as loan will also come down.

The interest of a loan is calculated based on the principal amount borrowed by the customer. Therefore, the higher the loan amount, the more money you will have to pay as interest and the higher your EMI amount will be. Therefore, it is a wise decision to pay a large amount as down payment. This will not only help you reduce the EMI of your loan, but will also help you save big in the long run.

Choose a Loan With a Longer Repayment Tenure

The term of loan repayment is inversely proportional to the amount of EMI for a particular loan amount. When you opt for a long loan tenure, the total due amount is distributed over a longer span of time. This, in turn, reduces the payable amount as monthly installments. However, choosing for a longer term also means that you will be charged a rate of interest on the outstanding debt for an extended duration.

While increasing the loan tenure can decrease your EMI, it can translate to a larger amount of interest over the course of the loan tenure. Therefore, you should be very careful before extending your loan tenure and always weigh all the pros and cons before increasing the duration of the loan.

Go for a Step-Down EMI Plan

There are numerous banks and non-banking financing companies that provide their customers with the option of a Step-Down EMI Plan. According to this scheme, when a borrower avails a loan, he or she has to pay a larger amount as EMI during the start of the tenure. As time progresses, the EMI amount gradually decreases as the principal amount decreases after each monthly payment. This plan can help reduce the interest burden during the later part of the loan tenure. Therefore, this kind of flexi-EMI scheme is best suited for people who are closer to their retirement as it is based on the cash flow needs of the customer.

Consider Taking Loans With Your Existing Bank

If you're already a customer with a certain bank, it would be a wise option to consider the same bank for purchasing a loan. This could work in your favor if you have a good standing with your bank, in which case they may be very likely to provide you with a lower rate of interest on your preferred loan.

Negotiate With Your Bank for a Lower Rate

Considering the above point, where the individual has a good standing with their bank, they may be in a position to negotiate with the bank for a lower rate of interest on the loan. Banks may be willing to do so for their existing customers in order to increase brand loyalty and also attract more customers.  

Compare Options Before Switching Your Lender

If you have decided to take a loan and your existing bank is not offering the best deal, feel free to look around. There is no shortage of credible and established loan providers in the market. However, before you zero in on a particular company, make sure that you have read the details of the loan like the prepayment penalty (if any), loan processing fee and other such charges which can contribute to the overall cost of the loan, making it more expensive. Also, if you are switching, do take note of the charges that your current lender may be levying for the transfer of the loan.

Full or Partial Prepayment Can Help Reduce Loan Burden

Loan prepayment can go a long way in helping you reduce the cost of your loan. In case you have received raise or have come into some money, it is highly advisable to partly or fully prepay your loan. As we know, a higher outstanding loan amount will attract a higher rate of interest. Therefore, while full prepayment helps you get rid of the loan burden completely, part pre-payment can also help greatly by bringing down not only the principal amount of the loan but also the term of the loan, resulting in lower payable interest.You can use EMI Calculator to calculate your EMI on Loan repayment.

Prioritize Payment of Loans With The Highest Interest

There are some loans which attract significantly high rates of interest, like credit card loans. Therefore, if you have taken a credit card loan, a personal loan and a home loan, it is advisable to pay off the credit card loan as soon as possible. While paying off the credit card loan, you may pay the minimum amount towards the repayment of your other two loans. By repaying the loan with the highest interest first, you can greatly save on the high rate of  interest which you'd otherwise have to continue paying, had the loan remained unpaid for that long a duration.

Take a Balance Transfer Loan

A balance transfer loan can help you reduce your loan EMI since such loans are offered with lower interest rates. However, it is also important to take into account other factors such as processing fees and other charges to make sure that it is indeed worth transferring your loan to another bank.