Introduction 

Inflation is ever increasing and this affects an individual’s capability to accumulate savings. As prices of necessities continue to rise, we spend more with every passing day. Transport, education, daily essentials etc. are all getting pricey as compared to a few years ago. There are also some major expenses which are essential in securing a good financial future and a comfortable lifestyle. Sometimes, all this necessitates an individual to borrow loans.

Our choices define the kind of lifestyle we will lead. If we are smart about the choices we make, we can spend our life without having to worry about paying loan EMIs. If, however, we do not work on our finances, the EMIs on loans may impact our monthly budget and we could end up leading a stressful life. A lot of times, people are not fully aware of the fine print in loan agreements and the eligibility to borrow loans. This could result in bad decision making, which can hurt one’s finances. 

Today, personal loans are freely available in the market but they usually come at a higher rate of interest and consecutively require higher EMIs. However, there are many ways in which we can reduce the EMI burden on personal loans and here are 5 of the best tips you can use for the same.

Top Tips to Reduce EMIs on Personal Loans

  1. Offer to Pay a Substantial Down Payment 

Down payment is the upfront amount that is paid while purchasing any big-ticket item such as real estate, car, etc. With the down payment, a portion of the total value of the item is paid by the customer. The remaining amount is what the customer has to borrow in the form of a loan. However, when the down payment made is higher, the loan amount automatically comes down. 

The interest on the loan is determined based on the principal amount that an individual borrows. The higher the borrowed loan, the more the interest payment and consecutively, the larger the EMI amount that one has to pay. Thus, it makes sense to pay a large portion as a down payment. This will help to reduce the EMI to be paid on loan and also allows one to save in the long run.

  1. Negotiate for Lower Interest Rate using your High Credit Score

If you have a high credit score and a long-standing relationship with the bank, it is possible to negotiate the terms of a loan with the bank, especially when it comes to a lower rate of interest. Banks are generally willing to offer a lower interest rate for customers with good credit scores as they are considered reliably and financially trustworthy. Banks look to retain such customers since it helps them to up their loyalty quotient.

  1. Opt for a Loan that has Longer Repayment Period

Loan repayment tenure is inversely proportional to EMIs for any loan amount. If you choose a longer loan tenure, the total repayment to be made gets distributed over a long time. This reduces the burden of monthly instalments as the monthly payable amount comes down. 

However, keep in mind that opting for a longer tenure also means that you will have to pay interest on the remaining debt for that much duration. While choosing a longer loan tenure can help to decrease your EMI, it can mean a larger interest burden over the remaining loan tenure. Hence, you must be very careful while deciding on the extension of your loan tenure. Make sure to weigh all the positives and negatives before choosing a longer tenure.

  1. Choose Step-Down EMI Option 

There are many banks and financial institutions which provide an option to customers for Step-Down EMI. Under this scheme, while availing a loan, the borrower must pay a larger EMI amount at the beginning of the tenure. As the loan tenure progresses, the EMI amount starts decreasing since the principal amount reduces post payment of monthly instalments. This option can help in reducing the interest burden over the loan tenure. This option is ideal for people who are nearing their retirement since it gets adjusted as per the cash flow requirements of the individual.

  1. Consider Loans from Same Bank

For customers of a certain bank, it makes sense to purchase a loan from the same bank. This can prove to be helpful for individuals who have a good relationship with the bank throughout their association. This can also help in fetching a lower rate of interest on the loan and in some cases, flexible repayment options.

Additional Alternatives to Consider

Calculate the Monthly EMI Before Taking a Personal Loan

Today, there are many user-friendly EMI calculators available online to help you in calculating EMI for any loan amount and tenure you choose. In a matter of a few clicks, you can get a clear understanding of the EMI amounts that you will have to commit to as per your loan amount and tenure. 

If you do this calculation well in advance, you will have a  clearer picture as far as managing your finances is concerned. It will also tell you whether the EMI may impact your monthly expenditures or otherwise. You can easily get this done by entering the loan amount and adjusting the loan tenure. It will show up all the possible repayment plans and you can select the ideal one which suits you the best.

With the help of these simple tips, you can make smarter choices when you apply for a personal loan. Always make well-informed and thought-through financial decisions to ensure that you can get rid of your loan burden as quickly as possible and also shell out lower EMIs. Always remember that when you go for a higher personal loan amount, you may end up paying far more in EMIs each month. 

Therefore, decide on the loan amount very carefully, choose the best lender, do some basic number crunching, and make sure to read the fine print before signing up on anything. By lowering your monthly EMIs you can easily avoid your loans turning into liability and can simultaneously maintain a good credit profile.