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ESG
EMIs on personal loans are a massive expense, but you can reduce it and save more money
The rise in inflation impacts our lives. As the cost of essentials increase, we spend more money every day, which affects our savings. This, in turn, hinders long-term wealth creation and prevents us from achieving our life goals.
While inflation is indeed a challenging opponent, personal loans can help reduce its impact on our savings. A personal loan ensures our savings remain intact, which preserves our future.
Read on to know how to reduce the EMI of your existing personal loan.
How to reduce the EMI of an existing personal loan?
Your personal loan agreement allows you to reduce the EMI of your existing personal loan. Here is how:
- The amount paid in advance while purchasing is referred to as a down payment. Because the customer bears a portion of the cost of the item, the amount that the customer must borrow as a personal loan will be reduced as well. The principal amount borrowed by the customer is used to compute the personal loan's interest. As a result, the greater the instant personal loan amount, the more interest you will have to pay and the higher your EMI would be. Hence, putting down a significant sum as a down payment is a prudent move. It reduces the EMI and helps save money in the long term.
Also read - What is EMI Full Form
- For a given loan amount, the term of payback is inversely related to the amount of EMI. When you choose a longer loan term, the total amount owed is spread out over a longer time. As a result, the amount due in EMI is reduced. However, picking a longer term implies you will be billed an interest rate on the outstanding debt for a longer time. While extending the loan term will lower your EMI, it can also result in a higher amount of interest over time. Therefore, exercise caution before prolonging your loan term. A reduced EMI is always better than a longer payback period.
- A step-down EMI plan is an option offered by many banks and non-banking financing institutions. Per this arrangement, when a borrower takes out a loan, he or she must pay a higher EMI at the beginning of the term. The EMI gets reduced over time as the principal balance decreases with each monthly payment. This strategy can help you save money on personal loan interest in the later years of your loan repayment term. As a result, because it is dependent on the customer's cash flow needs, this type of Flexi-EMI programme is best suited for people closer to retirement.
Balance Transfer:
A balance transfer allows you to shift your existing personal loan to a new lender offering a lower interest rate, reducing your EMI burden. This is ideal if market interest rates have dropped or if you've improved your credit score. However, it is crucial to evaluate the total savings, as some lenders charge processing fees or other costs for the transfer. Conduct thorough research and compare offers to ensure the new lender provides long-term benefits. Timing is key—transferring early in the loan tenure maximizes savings by cutting down on interest payments
Consider Debt Consolidation:
Debt consolidation simplifies loan management by merging multiple loans into a single one, often at a lower interest rate. This strategy reduces the complexity of tracking various EMIs and can significantly cut monthly payments if done with favorable terms. By consolidating debt, borrowers can streamline their finances and reduce the chances of missed payments, which could otherwise harm their credit score. However, it’s essential to account for any processing fees or penalties involved in consolidating loans
Why It is Important to Reduce EMI?
- Financial relief and improved cash flow
- Easier loan management
- Potential for saving on interest payments
The EMIs on personal loans are affordable, and you can reduce them further to ensure maximum savings.
- If you are planning to shift bases and opt for a balance transfer to another bank, use the personal loan EMI calculator. It will guide you on how to get a reduced EMI rate.
IDFC FIRST Bank offers personal loans with reduced EMIs. Various other facilities, wherein you may be able to pay your loan amount back easily, are also available to reduce the burden on customers. You can reach out to the banks’ customer service if you need help at any time.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.