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Can I Reduce My Personal Loan EMI?

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Highlights

  • Want to reduce the personal loan EMI but don’t know how to do it?
  • Read this post to know the same

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:-

ParticularsPart Payment Details
Loan AmountINR 6,00,000
Balance Amount after 2 yearsINR 3,35,651
EMIINR 15,800
Total Payable InterestINR 1,58,414
Interest Paid So FarINR 1,14,859
Part Payment AmountINR 2,00,000
Balance After Part PaymentINR 1,35,651
Part Payment Fee + 18% GSTINR 4,720
EMI Post Part PaymentINR 6,386
Payable Interest After INR 2 Lakh part paymentINR 17,603
Interest Paid So Far + Interest Payable Post Part PaymentINR 1,32,462
SavingsINR 25,952 (1,58,414 - 1,32,462)
Savings Post Payment of Part Payment FeeINR 21,232 (25,952-4,720)
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Method 2:-

ParticularsForeclosure Details
Loan AmountINR 6,00,000
EMIINR 15,800
Total Payable InterestINR 1,58,414
Interest Paid So FarINR 1,14,859
Balance Amount after 2 yearsINR 3,35,651
Foreclosure Fee + 18% GSTINR 11,882
Savings Before Foreclosure FeeINR 43,555 (1,58,414 - 1,14,859)
Savings Post Foreclosure FeeINR 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.

ParticularsDetails
Loan in BeginningINR 5,00,000
Interest Rate16.00%
Tenure5 Years
EMI @16.00%INR 12,159
Estimated Interest Outgo @16%INR 2,29,542
Interest Paid Till 2 yearsINR 1,37,665
Outstanding Balance at the End of 2nd YearINR 3,45,849
EMI @10.00% for the Remaining 3 YearsINR 11,160
Interest @10.00% Over 3 YearsINR 55,896
Interest Paid Till Now + Interest Payable Over the Next 3 yearsINR 1,93,561
Estimated Savings in Terms of EMIINR 999
Estimated Savings in Terms of Interest PaymentINR 35,981 (2,29,542 - 1,93,561)
Savings After Transfer fee of INR 1,500INR 34,481
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Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.99% - 18.49%
IndusInd Bank11.25%
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