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Can I Reduce My Loan Payments?

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Highlights

  • How to reduce the loan EMIs and interest payments?
  • Choose a lower rate of interest, go for a balance transfer at the right time, etc - Read this post to know more about these tips

If you care about your finances, you will like the idea of keeping loan obligations to the lowest extent possible. Even though it helps us meet many of our needs and aspirations, a loan is an obligation that one has to fulfill without fail. Failing to do so can decrease your credit score. If the pattern continues, you will be robbed of the opportunity to get fresh credits. When it’s about unsecured loans such as a personal loan, non-payments for long could even lead to legal complications. Whereas, the default of secured loans will mean the loss of assets that might have been mortgaged with the lender.

Given the perils the non-payment of loans poses to you, it is good to do some due diligence before and after taking the loan. Here’s a list of tips, which if implemented properly, can reduce your loan payments. So, read on!

Tips That Can Help Reduce Loan Payments

When we talk about reducing loan payments, we mean the reduction of both EMI and interest obligations for borrowers. Let’s see below what can be done to achieve these with ease.

Shop for the Best Interest Rate

In this age of cut-throat competition, both banks and non-banking finance companies (NBFCs) are promoting loan offers on a large scale. As a result, it becomes quite difficult for a layman to choose the best loan offer for him/her. Therefore, you should first check how much the interest rate the concerned lender is charging. After that, compare it with what others have. This will help you get an idea of what the best interest rate can be in a given situation. To do this task with precision, you can go online and compare the interest rate deals. Always have an eye on the lender that offers the lowest rate to its borrowers.

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There can be a few conditions to get the lowest rate; if you meet those, you will have reasons to smile. The conditions can be with regards to income, employment stability, and other factors. With the lowest rate, both the Equated Monthly Installment (EMI) and overall interest payments will reduce significantly. If you are searching for the best interest rate deals for two of the most popular loans – personal loan and home loan – you can do a comparison right here.

Personal Loan Interest Rates of Top Lenders in India

LendersInterest Rates (In Per Annum)
HDFC Bank10.75% - 21.30%
ICICI Bank10.75% - 18.49%
Kotak Mahindra Bank10.75% - 17.99%
State Bank of India (SBI)9.60% - 13.60%
Axis Bank12.00% - 24.00%
IDFC First Bank10.99% - 22.00%
YES BANK10.75% - 17.00%
Bajaj Finserv10.99% - 16.00%

Home Loan Interest Rates of Top Lenders in India

LendersInterest Rates (In Per Annum)
State Bank of India (SBI)6.95% - 7.60%
HDFC Limited6.90% - 7.65%
ICICI Bank6.95% - 8.05%
LIC Housing Finance (LIC HFL)6.90% - 7.90%
PNB Housing Finance (PNBHFL)8.60% - 9.45%
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%

Do a Balance Transfer to Another Lender at a Lower Rate of Interest

Call it the unawareness or urgency, you may not get the best interest rate when you apply for a loan. But you can get the interest rate down while paying the loan EMIs. Yes, you heard it right! There’s a balance transfer tool that helps you achieve the same. It’s a facility by which you can transfer the existing loan balance to another lender at a lower rate of interest. The reduced rate of interest will result in a reduction of both EMI and interest payments.

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But if you want to maximize, it is important to know the ideal difference between existing and new interest rates on a balance transfer before going ahead. For short-term loans like personal loans and car loans, the interest rate offered on a balance transfer has to be a minimum of 4%-5%. The balance transfer fee is also charged by the new lender, so the difference in interest rate has to be substantial to generate maximum savings for you. The timing of a balance transfer of these loans will also hold the key. Say, if your personal loan has run for 4 out of 5 years, a balance transfer may not yield you much. Ideally, the balance transfer should be done within 2-3 years if it is about a personal loan.

In the case of home loans, the offered rate of interest on a balance transfer should be lower than the existing rate by at least 0.25%-0.50%. Having more differences will only be a bonus for you. Here again, the timing of the balance transfer will be critical. The sooner you get the balance transfer done, the more savings you will have. Ideally, one should get the balance transfer done within the halfway stage of a home loan. As interest payments are more in the initial stages, having the balance transfer done at that time will bring more savings for you.

Keep Saving from Your Daily Routine for Loan Prepayment Later

Saving is one habit that you should embrace throughout your lifetime. And, with a running loan, it becomes even more important. And, if you are thinking of reducing the loan payments, prepayment can be a good ploy. The word ‘prepayment’ means the payment of the outstanding balance before the original loan tenure. You can either make a full or part prepayment, depending on the outstanding loan balance and your savings. In either of the two, you will reduce loan payments. With a full prepayment, the loan will come to an end. Whereas, with the part prepayment, you will get a new loan structure where the interest will be charged on the reduced outstanding balance. This will result in reduced EMI and interest payments.

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But how will you generate the amount that can help you prepay the loan? Will keeping money in a savings account be sufficient? Maybe not! You need to put money on other instruments too. These instruments can be fixed deposits, recurring deposits, or even a mutual fund if you are looking to prepay a long-term loan like a home loan. You can utilize the yearly remuneration hikes efficiently to accumulate a corpus for loan prepayment.

Apply for the Loan Amount You Need

Be clear of the loan amount you actually require to meet your needs. Often, we discount the importance of savings and end up applying for a much bigger amount. You may be eligible for such an amount. But doing so will unnecessarily push up the EMI amount and interest payments. So, if you have decent savings, use some portion of that and reduce the loan amount, which will reduce your overall loan payments over time.

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Personal Loan Interest Rates September 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.75% - 18.49%
IndusInd Bank11.25%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.00% - 15.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates September 2020
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%
Citibank8.20%
HDFC6.90% - 7.65%
ICICI Bank6.95% - 8.05%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank7.20% - 9.30%
LIC Housing6.90% - 7.90%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance8.60% - 9.45%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI6.95% - 7.60%
Tata Capital9.20% - 9.35%