Both at the individual level and collective level, personal loans constitute a very important financing tool. While it empowers the individual to access cash quickly, either to consume or to meet sudden emergencies, at a collective level, it powers consumption, which is essential as a growth driver of the economy of the country. However, there is one booby-trap that every applicant must be aware about personal loans.
However, the interest rates on personal loans are far higher than secured loans and every borrower needs to keep EMIs low to lower financial stress. Therefore, the main ways to reduce EMIs on personal must be known to every applicant. Let’s have a look at some of them.
Take the bare minimum loan
This is the golden rule not only for personal loans but for all loans. Taking the smallest loan will ensure the smallest EMI. Then there is also the important issue of scouring the market for the lowest rate of interest on personal loans. But major banks advise that once these two things are settled, there are a few steps that one can consider to lower the EMI burden.
Step-down EMI a possible option
As the name indicates, in this type of arrangement, the EMI payouts reduce every year during the tenure of the loan. Usually, you have to initially repay a significant chunk of the principal part of the loan along with the interest component in early years of the repayment period. As the years go on, the EMI will come down. Bankers say, this mode can be useful for those nearing retirement.
Making part payment ahead of schedule
You can opt for paying off a part before schedule, say after paying 12 EMIs. The large sum of money you pay as part-prepayment is deducted from the remaining principal amount. A reduction in the principal automatically amount reduces interest, and therefore, the EMI. Typical situations can be using annual bonus to part pay a chunk the outstanding principal.
Balance transfer is an option
This facility refers to the transferring the unpaid amount of loan to a new lender who might charge a lower interest rate. Often the new lender can allow you a longer repayment period, thereby powering your EMI burden. One of the key steps in this mode is that you must take into account the charges that your existing lender can charge for foreclosure of the loan and if your new lender will charge loan processing fees.
Personal loans provide easy access to cash without pledging any asset as collateral. The approval process of personal loans is quick without no constraint on end use of the money. But personal loans are high on interest rates. Therefore, every applicant must know how to work towards reducing the EMI on personal loans. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
