How to reduce personal loan EMI? You may have this question in mind. Keep reading to find out more.
Whether it is purchasing a house, paying medical bills, attending college, or just paying for day-to-day expenses, more and more people opt to or are forced to take out loans. With the cost of living seemingly rising every day, it has become increasingly difficult to cover expenses with only your personal savings.
Everyone who has taken out a personal loan will have an EMI to meet every month. Equated Monthly Installment, or more commonly known as EMI, is the fixed amount payable monthly until both the principal loan amount and interest amount are paid off. Your EMI is calculated by the principal loan amount, annual interest rate divided by twelve, and the tenure of your loan.
There are numerous ways you can bring down your personal loan EMI. Below we have listed some of those ways you could reduce the cost of your loan.
1. Opt For A Loan With A Longer Tenure
Your EMI is inversely proportional to the tenure of your loan. A longer loan tenure means that you would be able to pay off the debt over a longer period of time. As a result, the EMI amount that you have to pay monthly is smaller. But it is also important to remember that a longer loan duration will likely increase the interest rate charged. You will be paying less each month, but in the long run, you will be paying a larger amount. It is vital for you to carefully consider the positives and negatives of choosing a longer loan repayment tenure.
2. Apply For A Loan With Your Existing Bank
It is usually more favorable for you to apply for a loan with the bank you are currently with. This is because, assuming you have a positive relationship with the bank, you are highly likely to be offered lower interest rates compared to other banks.
3. Negotiate With Bank For Lower Rate
If you decide to apply for a loan with your current bank, and you have a good relationship with them, you could be able to further negotiate the interest rate. The bank may agree to further lower the interest rate in order to promote brand loyalty among existing clients and attract more customers.
4. Choose Other Lenders
There is a possibility that the terms your bank offered you are not the best in the market. If you feel that way, it is a good idea to go online and look around for better offers. There are countless reputable lenders and credit companies out there so you will have a lot of options to go with.
However, it is extremely important to do your due diligence and research up these companies to avoid any surprises. You need to look out for things such as processing fees, penalties, and other hidden costs as they may drive up the cost of your loan.
5. Pay A Higher Down Payment
A loan down payment refers to the amount you pay upfront when applying for a loan. The higher the down payment, the lower the principal loan amount considered. Since your interest rate is calculated based upon the principal amount, a higher down payment would translate to lower interest rates and EMI.
6. Pay Off Loans With Higher Interest Rates First
Do you currently have numerous loans and want to quickly reduce your EMI? Then the quickest way would be to prioritize loans with high-interest rates. High-interest rate loans can get extremely expensive in the long run. It is highly advisable to clear these debts as soon as possible. You can do this by paying the minimum amount towards the repayment of your other loans, while at the same time focusing the remainder of your expendable income on the high-interest loan. By doing this, you can avoid paying high-interest rates over long durations.
The bottom line is that it is very difficult to meet high EMIs each and every month. It can put a severe strain on your finances and hinder you from reaching your goals. However, doing the methods mentioned in this article can greatly help lower your EMI and reduce the burden on your financial situation.