Meeting needs can be difficult in today’s times considering how inflation has had an increasing effect on prices of goods and daily needs. The characteristic of the market slowdown and economic depression that the country is currently going through, expenses are mounting compared to income levels, thus, warranting the need to apply for personal loans from banks or non-banking financial companies (NBFCs). Some of the most commonly sought personal loans include HDFC Personal Loans, SBI Personal Loans, Dena Bank Personal Loans, etc.
The interest rates charged on personal loans are higher than others. Also, the maximum tenure allowed to repay personal loans, by any financial institution, is five years. Considering that there is no need to submit any form of collateral to avail these kinds of loans, there are a lot of factors that the lending institution considers before assenting to the loan disbursement process.
The loans need to be repaid off monthly. Many people find it difficult to pay back the loan amount and complain about how the equated monthly instalments (EMIs) take a toll on their monthly incomes. However, repayment of personal loans can be less painful if one takes the following steps towards lessening their loan burden. These include:
Loan pre-payment: Many people avail personal loans when they are required to make immediate payments towards some expenses but lack the necessary amount of funds. However, it is possible that after having availed the personal loan benefit, the borrowers may have received the funds due in their accounts. Instead of re-investing the received amount or allowing it to stay idle in the account, it is worthwhile to consider pre-paying the loan amount. Aditya Kumar, Founder and CEO, Qbera.com says, “Many banks will allow you to pre-pay your loans without any charges provided you pre-pay using your funds. As such, pre-payment of your loans can bring down your monthly instalment burden without any additional charges.”
CLEARING LOAN DUES
Anuj Kacker, COO and Co-Founder, MoneyTap says, “If your finances allow, pre-paying is a good option to save interest on your loan. However, there are a couple of important things to keep in mind.
Most banks levy some charges on pre-payment. Compare the interest that you’ll save with the cost of pre-payment and then decide. If your bank permits, you can also choose to make a part payment. It will reduce your EMIs and/or loan tenure.
It is wiser to pre-pay during the initial stages of the loan so that you can save more on interest. If your bank has a lock-in period, try and pre-pay as soon as it ends.
Prefer repayment of debts with higher interest rate: Availability of multiple loans and credit card options has resulted in an increasing number of people falling in a debt trap. Personal loans charge more interest than credit cards and home loan repayment options. To ensure timely repayment of all the loans taken, it is important to prioritise debt repayment in the descending order of interest rates. This means that personal loans must be repaid before paying the EMIs of all other loans taken.
Taking home loan top-up helps: Not many people have heard of taking home loan top-ups. Lower in interest cost than personal loans and credit cards, one can seek top-up loans from their housing finance companies to repay their loans early. This ensures that you repay your personal loans early at lower interest rates while also availing the benefits of maintaining fewer loan accounts.
Personal loan balance transfer: Transferring your high-interest personal loans to a low-interest personal loan opportunity helps. However, this is possible when you enjoy a good credit score, thus, allowing you to save on your overall interest cost while also reducing the EMI loan amounts to be repaid. Kumar says, “A balance transfer is a provision under which you can transfer your existing personal loan to a new lender. The option works well if you want to get approved for a higher amount at a lower interest rate. Under this facility, your previous outstanding balance is completely closed, you’re offered a higher loan amount and a more flexible repayment tenure – all this at a lower interest rate. That said, it isn’t the best option if you want to close your personal loan early.” Defining the pros and cons of a loan balance transfer,
Saving every bit of your income: “Earn more and spend less” is an age-old adage that applies to every generation. Suresh Sadagopan, founder, Ladder7 Financial Advisories says, “Personal loans are often taken as savings done till then are not enough to take care of some expense. Diligent savings & investments right from the beginning will create a good fall back that can be used for any expenses that would come up in future & would obviate the need for a personal loan itself.”