Can I Reduce My Personal Loan EMI?
Last Updated : May 22, 2020, 2:53 p.m.
Yes, you can reduce your personal loan EMI by using several ways. The lesser EMI amount will decrease the overall interest outgo provided you are not increasing the tenure to decrease the installment amount. If the Equated Monthly Installment (EMI) is reduced by lengthening the period of the loan, the interest payment will be much more. So, it’s clear how you should go about tenure when looking to reduce the EMI. But what are the legitimate ways by which you can reduce the EMI while also keeping a check on the outflow of interest? Let’s read out the same in this post.
Do a Part Payment
The first thing you will decide to do would be a prepayment. While the full prepayment relieves you from the loan obligation, a part payment will reduce the EMI and interest outgo for the remaining course of the loan. But the lender could also charge a part payment fee. The fee will also include an 18% Goods and Services Tax (GST). But some lenders allow only full prepayment.
Example: A salaried individual borrowed a personal loan of INR 6,00,000 at an interest rate of 12.00% for 4 years. And after two years of its payment the borrower decides to do a closure or part payment. Assume the foreclosure fee is 3% on balance amount and part payment fee is 2% of the amount paid. Look at the tables below to know what will happen to the repayment pattern of the borrower using any of the two methods.
Method 1:-
| Particulars | Part Payment Details |
|---|---|
| Loan Amount | INR 6,00,000 |
| Balance Amount after 2 years | INR 3,35,651 |
| EMI | INR 15,800 |
| Total Payable Interest | INR 1,58,414 |
| Interest Paid So Far | INR 1,14,859 |
| Part Payment Amount | INR 2,00,000 |
| Balance After Part Payment | INR 1,35,651 |
| Part Payment Fee + 18% GST | INR 4,720 |
| EMI Post Part Payment | INR 6,386 |
| Payable Interest After INR 2 Lakh part payment | INR 17,603 |
| Interest Paid So Far + Interest Payable Post Part Payment | INR 1,32,462 |
| Savings | INR 25,952 (1,58,414 - 1,32,462) |
| Savings Post Payment of Part Payment Fee | INR 21,232 (25,952-4,720) |
Method 2:-
| Particulars | Foreclosure Details |
|---|---|
| Loan Amount | INR 6,00,000 |
| EMI | INR 15,800 |
| Total Payable Interest | INR 1,58,414 |
| Interest Paid So Far | INR 1,14,859 |
| Balance Amount after 2 years | INR 3,35,651 |
| Foreclosure Fee + 18% GST | INR 11,882 |
| Savings Before Foreclosure Fee | INR 43,555 (1,58,414 - 1,14,859) |
| Savings Post Foreclosure Fee | INR 31,673 |
Balance Transfer
A personal loan carries a high rate of interest and this the primary reason for the high EMI as well. And to reduce it you have an option to transfer your loan to another lender. What is its benefit? When you have a high EMI, you can use the option of the balance transfer. You just need to find a lender that offers you a low rate of interest for your existing loan and all you need to do is then is close your loan with the existing lender. And pay a transfer fee to use the benefit of other lender interest rates on your balance amount. To understand it better you can refer to
Example: Archana went through a medical emergency as her father had a heart attack. She borrowed a personal loan of INR 5,00,000 in a hurry. And the lender charges an interest rate of 16.00% on her loan. And now she wants to reduce the quantum of the EMI. One of her friends suggested a balance transfer facility by which her EMI reduces. After that, she does the same and the savings is as mentioned in the table.
| Particulars | Details |
|---|---|
| Loan in Beginning | INR 5,00,000 |
| Interest Rate | 16.00% |
| Tenure | 5 Years |
| EMI @16.00% | INR 12,159 |
| Estimated Interest Outgo @16% | INR 2,29,542 |
| Interest Paid Till 2 years | INR 1,37,665 |
| Outstanding Balance at the End of 2nd Year | INR 3,45,849 |
| EMI @10.00% for the Remaining 3 Years | INR 11,160 |
| Interest @10.00% Over 3 Years | INR 55,896 |
| Interest Paid Till Now + Interest Payable Over the Next 3 years | INR 1,93,561 |
| Estimated Savings in Terms of EMI | INR 999 |
| Estimated Savings in Terms of Interest Payment | INR 35,981 (2,29,542 - 1,93,561) |
| Savings After Transfer fee of INR 1,500 | INR 34,481 |