We are living in an economy with high inflation levels. Every day, the costs of necessary commodities are going up, driving us to consume more on our day to day living. In addition to our everyday expenses, there are some significant expenses or investments which one must make to secure their financial health. For example, an individual who wants to buy a house which can generate some income in the form of rent or they would want to purchase a vehicle to make their commute easier. For such significant expenses, it is always desirable to take a loan, instead of making the payment through savings.
A loan can be taken to fulfill a life goal, financial or medical emergency. However, an individual must remember that loan is also an additional expense, considering the interest charged by banks on the EMI. If you have to pay a high-interest rate each month on loan, then paying for your home through a home loan would become costlier. With a higher rate of interest, the amount of EMI that you are required to pay goes up.
Some tips could help you in saving money on the EMI of your loan. Listed below are surprising
ways in which you can bring down the monthly cost of your loan.
Opt for a Higher Down Payment
Down payment is the total sum that the customer pays at the time of purchase of an item. Since a part of the total price of the item is carried by the customer, the amount of money that the customer will be required to borrow as the loan will also decline. The interest linked to a loan is determined based on the principal amount. Hence, the higher the loan amount, the higher money you will be required to pay as interest and consequently, your EMI amount will also be high. So, it is a smart decision to pay the largest amount possible as the down payment. This would help you in bringing down the burden of the loan and also generate savings in the long run.
Choose a Loan With a Long Repayment Tenure
The tenure of loan repayment is inversely proportional to the EMI amount. If you choose a longer loan tenure, the total amount due is spread over a lengthy period. This would reduce the EMI payable each month. However, choosing for a long-term also means that you will be imposed a rate of interest on the debt for a longer duration. While extending the loan tenure can reduce your EMI. Hence, you should be careful before spreading your loan tenure and always scale the pros and cons before extending the duration of your loan.
Go for a Step-Down EMI Plan
There are various banks and non-banking financing companies which provide their customers with the option of Step-Down EMI Plan. According to this scheme, if a borrower gets a loan, he/she has to pay a considerable amount as EMI in the starting of the tenure. As time advances, the EMI amount would gradually decrease as the principal amount also decreases after each monthly payment. This plan can help in reducing the burden of interest amount during the following part of the loan tenure. Therefore, this type of flexible EMI scheme is befitted for people who are closer to their retirement since the amount to be paid each month keeps declining, thus decreasing the amount incident on the individual each month.
Consider Taking Loans With Your Existing Bank
It is always better to take a loan from the bank where you are an existing customer. If you're an existing customer with a particular bank, then you can get the loan approved in a shorter period and earn an attractive rate of interest on the loan. For people who have a good standing with the bank and have a solid credit score can get any form of loan approved easier at a lower-than-market rate of interest.
Negotiate With Bank For Lower Rate
Considering that the individual has a good reputation with their bank, they might be in a state to negotiate with the bank for a lower interest rate on loan. Banks might be ready to do so for their existing customers to increase brand loyalty and to attract more customers.
Compare Before You Switch Your Lender
If your existing bank is not giving you the best deal, you must check various banks to get a better deal. There is no deficit of reliable and established loan providers in the financial market. However, you must do proper research before deciding to take the loan from any bank. Make sure to learn about the processing fees, interest rate and amount to be paid each month. You must ensure to take into account the amount that will be charged by the lender bank in transferring the amount.
Full or Part Prepayment Helps in Reducing Loan Burden
Loan prepayment could help you in reducing the cost of your loan. If you have received an increment or you have won a massive sum of money, it is advisable to partially or fully pay off your loan. We know that a higher outstanding amount would attract a higher interest rate. Full prepayment of the loan would take off the burden of the loan entirely, and partial prepayment would help in reducing the interest rate. You can use EMI Calculator to estimate your EMI.
Pay off the Loan with the Highest Interest Rate First
There are various loans which attract significantly high-interest rate, like credit card loans. Therefore, if you have taken a personal loan, a credit card loan and a home loan, it is desirable to pay off the credit card loan as soon as possible since a credit card loan attracts a higher rate of interest. You may pay the least amount towards the repayment of your other two loans while making the complete payment of the credit card loan. By paying the loan with the highest interest as a priority, you can save a considerable amount.