• Simple Ways to Reduce Your Loan EMI

    As individuals living in times of ever increasing inflation, it isn’t always easy to accumulate savings. Everyday, prices of necessities are going up, forcing us to spend more on our day to day living. Groceries, transport, education, etc. are no longer available at the same price which they were perhaps 3 years ago. In addition to our day to day expenses, there are certain major expenses or investments which one must make in order to secure their financial future or even bring some comfort in their life. For example, an individual wishes to purchase a house which can yield them some income by way of rent or they would want to purchase a vehicle in order to make their commute easier and comfortable. For such major expenses, it is always advisable to take a loan, instead of making the purchase with the help of one's savings.

    A loan may be taken in order to fulfill any life goal or finance an immediate need. However, one must remember that a loan is also an added expense, considering the interest which banks levy on the EMI payable. A higher rate of interest can make repaying your home loan that much costlier. With a higher rate of interest, the amount of EMI which you have to pay automatically goes up.

    There are certain ways or tips which can help you save money on your loan EMI. From negotiating with your lending company to changing your lender, listed below are some of the ways in which you can bring down the cost of your loan.

    Opt for a Higher Down Payment

    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 Bank For 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.  

    Calculate your EMI

    Compare Before You Switch 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 Part Prepayment Helps 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.

    Read About Simple Ways to Reduce Your Loan EMI

    • Bank charges set to face scrutiny

      A committee may be appointed by the Reserve Bank of India to look into the bank charges due to high court judgements and increasing number of complaints about the issue in the Parliament. According to the data from the finance ministry, three major private banks and close to 21 state run banks have accumulated around Rs.5,000 crore from consumers because of not maintaining a minimum balance in their accounts. HDFC earned around Rs.590 crore as penalty while the State Bank of India earned close to Rs.2,433 crore. The problem rose after the Reserve Bank of India removed limits to the charges that could be made on different counts and the banks started to make these charges arbitrarily.

      14 August 2018

    • Norms for FPIs’ investment in debt have been relaxed

      The Reserve Bank of India has announced that the norms for the investment in debt by Foreign Portfolio Investors (FPIs) have been eased. The investment in individual large businesses will be more flexible. This decision was taken to attract more overseas investment in the country.

      Some of the changes implemented are as follows:

      • FPIs can invest in government securities without minimum residual maturity norms, as long as the short-term investments do not go beyond 20% of the total investment.
      • FPIs can invest in corporate bonds that have minimum residual maturity of more than 1 year. This can be done only if short-term investments in corporate bonds do not go beyond 20% of the FPI’s total investment in such bonds.
      • The short-term investments may exceed 20% of overall investments, provided that the investments are made on or before 27 April 2018.
      • The cap on investment in government securities has been increased to 30% from the earlier 20%.
      • FPIs can invest in G-secs until the limit utilisation touches 90%. The auction mechanism for the allocation of the remaining 10% has been discontinued. There is now an online monitoring system that has replaced the auction mechanism.
      • FPIs will not invest in partly paid debt instruments.

      19 June 2018

    • Home loan limits increased for Bihar Staff

      The cabinet of chief minister Nitish Kumar gave some much needed relief for Bihar state government employees by increasing the home loan limit from Rs.10 lakh to Rs.25 lakh. House expansion advance was also increased to Rs.10 lakh from the existing Rs.1.8 lakh. Government employees will now be given a Rs.50,000 advance to buy computers five times during their entire service tenure. Similar to what was done by the Centre, advances given to judicial service and state government officials for buying cars and motorcycles have now been stopped.

      22 May 2018

    • Rate cut by RBI is not certain as a result of inflation concerns

      Although the inflation rate for March is at 4.3%, analysts are uncertain about policy rate cuts by the Reserve Bank of India (RBI). According to Morgan Stanley, the rise in inflation in the second half of 2018-19 may lead to a shallow hike in rate from October to December. As a result of continuous implementation of HRA (house rent allowance) and the reversal of base effects in food inflation, the inflation trajectory is expected to be driven to a peak in the month of June.

      According to Crisil, no revision in policy rates by RBI for the next 6 months but the CPI inflation is expected to average at 4.6% next fiscal owing to increasing demand in consumption, impact of HRA revisions on housing inflation, and increasing global crude oil prices. According to Bank of America Merrill Lynch, the CPI in June quarter is expected to be 5.4%. A 0.25% rate cut by RBI is likely in August. Retail inflation has cooled down to 4.28% due to reducing food prices.

      16 April 2018

    • SBI increases 1-year MCLR to 8.15% resulting in higher loan EMIs

      On 1 March 2018, State Bank of India (SBI) hiked its 1-year MCLR by 20 bps to 8.15% from 7.95%, effective immediately. This hike in lending rates was announced after the bank increased its deposit rates across maturities. Home loan borrowers will have to pay higher EMIs due to the revised 1-year MCLR. The revised MCLR for overnight tenor is 7.80% and 8% for 6-month tenor. The new MCLR for 2-year tenor is 8.25% and 8.35% for 3-year tenor. The new MCLR is applicable on home loans, education loans, loans against properties, and certain personal loans taken after 1 April 2016.

      6 March 2018

    • Borrowers with old base rate regime may enjoy cheaper home loans

      On 21 February, the Reserve Bank of India (RBI) in its monetary policy statement has asked banks to link the base rates to the Marginal Cost of Funds based Lending Rates (MCLR) from 1 April 2018. Interest rates on home loans obtained before April 2016 have not been revised by banks in line with market rates. The pre-April 2016 home loan borrowers who had older base rate regime will now have revised rates in line to the current market-linked benchmark. These borrowers will probably enjoy cheaper home loans.

      26 February 2018

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      1 February 2018

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