- How can you save a huge amount on a personal loan?
- Opting for Low-interest Rates, Prepayment Facility and Balance Transfer facility can help ensure the same - Read this post to know how!
A personal loan remains one of the popular loan options among individuals to fulfill their financial needs. Be it funding your long-due trip or getting the required money for your child’s education/marriage or even for clearing off your large credit card due. With a personal loan, Banks and Non-banking Financial Companies (NBFCs) provide the required money at an affordable rate of interest for a maximum of 5 years. It is important to ensure maximum savings on a personal loan so that you don’t end up paying much more money than you planned initially.
Every individual wants to save money when going for a personal loan, and there are several methods by which he or she can achieve the maximum savings. You need to keep these methods in your mind right from the moment when you are looking to opt for a personal loan. Some of these methods go along with the loan process and can be applied until the loan is fully repaid. If you use these methods carefully, you can save a substantial amount of money. In this article, We will cover all such methods that can be highly beneficial for your overall finances. So, without any further delay, let’s start knowing them.
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Let’s Know the Methods to Save Maximum Amount on a Personal Loan
It is important to know a few methods that can help save a substantial amount on a personal loan. These methods are Opting for the Best Personal Loan Interest Rates, Choosing Lower Processing Fees, Balance Transfer Facility, Prepayment Facility and going for a shorter tenure. By applying these methods, an individual can ensure maximum savings on a personal loan.
We are covering all these methods one after another below so that you can understand each of them individually. Please have a look.
Opt for the Best Personal Loan Interest Rates
Interest rate is one of the first things that an individual looks for when applying for any kind of loan. Personal loans are unsecured loans and that’s why lenders charge a higher interest rate to minimize the credit risk. Personal loan interest rates usually range from 9% to 20% per annum and change from one lender to another. Apart from this, there are a few factors that decide an individual’s final rate of interest — Monthly Income, Age, Job type, Employment History, Residing City, Existing Obligations, and most importantly, Credit Score.
If you want to ensure maximum savings on a personal loan, you should choose the most suitable personal loan interest rates for you. The reason is your repayment amount depends on the interest rate. If you choose lower interest rates, your EMI amount will be lower and vice versa. To save a substantial EMI amount and interest outgo, you should choose the best personal loan interest rates. We are showing you this via an example.
Let’s say an individual wants to opt for a 5-year personal loan of INR 8 lakh. Here we are taking two different interest rates of 10.99% and 17.99% per annum.
|Loan Amount||Rate of Interest||EMI Amount||Interest Outgo|
|INR 8 lakh||10.99% per annum||INR 17,390||INR 2,43,397|
|INR 8 lakh||17.99% per annum||INR 20,310||INR 4,18,623|
From the above table, you can see how choosing a lower interest rate of 10.99% per annum can help the individual save around INR 3,000 on the EMI amount and INR 2 lakh on the interest payment. We are also providing personal loan interest rates of top lenders. You can choose the most suitable one for you.
|Lender||Rate of Interest (in per annum)|
|State Bank of India (SBI)||9.60% - 13.60%|
|HDFC Bank||10.40% - 17.00%|
|ICICI Bank||10.75% - 17.50%|
|IndusInd Bank||11.00% Onwards|
|Bajaj Finserv||14.00% - 16.00%|
|Standard Chartered Bank||11%-12.50%|
|Tata Capital||10.99% - 19.75%|
|Kotak Mahindra Bank||10.75% Onwards|
|IDFC First Bank||10.49% - 31.00%|
|YES BANK||10.70% Onwards|
Go for Lower Processing Fees
When an individual opts for a personal loan, lenders charge a one-time processing fee to process the loan amount. This fee is either a fixed flat amount or a certain percentage of the loan amount. It tends to vary from one lender to another. You need to keep this fact in mind that the processing fee is deducted from the loan amount disbursed by the lender. To ensure maximum savings on your personal loan, an individual always chooses the lender that charges a low processing fee. This will also ensure that the disbursal amount is not much lower than the amount you applied for initially.
Think of the Personal Loan Balance Transfer Facility
A personal loan balance transfer could be an efficient method to ensure maximum savings on a personal loan. So how exactly does this facility help individuals? With Balance Transfer, an individual can transfer his or her outstanding personal loan principal outstanding amount to another lender who is providing lower interest rates. With this, a substantial EMI amount and interest outgo can be saved. Individuals will need to pay a certain Balance Transfer fee for this facility.
The repayment behavior of an individual must be good to get a Balance Transfer facility. Let’s understand this via an example of how much money you can save by opting for this facility.
Let’s say an individual has opted for a 5-year personal loan of INR 8 lakh at an interest rate of 18.99% per annum. He must be paying an EMI of INR 20,748. Now after paying EMIs for two years on time, the individual wants to opt for a Balance Transfer at a lower interest rate of 12.99% per annum. You can see the calculations in the below table to know the savings.
|Loan Amount||INR 8 lakh|
|Rate of Interest||18.99% per annum|
|Tenure||5 years (60 months)|
|EMI at the current Interest Rate of 18.99% per annum||INR 20,748|
|Estimated Interest Outgo at 18.99% per annum||INR 4,44,882|
|Interest Paid Till now (2 years)||INR 2,64,051|
|Outstanding Balance at the end of 2 years||INR 5,66,098|
|EMI at the new interest rate of 12.99% per annum||INR 19,071|
|Interest Outgo at 12.99% per annum||INR 1,20,471|
|Interest Paid Now + Interest for the Remaining 3 years||INR 3,84,522|
|Estimated EMI Savings||INR 1,677 (20,748 - 19,071)|
|Estimate Interest Savings||INR 60,360 (4,44,882 - 3,84,522)|
So you can see from the above table that you can save INR 1,677 on the EMI amount and INR 60,360 on the Interest Outgo when you opt for a Balance Transfer Facility. You can do all of these calculations yourself by using the Personal Loan EMI Calculator.
Choose a Shorter Tenure
Usually, personal loans are given for a maximum period of 5 years, and you can choose it according to your monthly income and repayment capacity. When you opt for a longer tenure, your EMI amount will be lower but your interest outgo will be higher and vice versa. So, if your monthly income allows you to opt for a shorter tenure (higher EMI amount), you can ensure maximum savings on your personal loan. A shorter tenure can reduce your EMI amount as well as interest outgo substantially.
You can easily understand this via an example. We are taking a personal loan amount of INR 5 lakh at an interest rate of 12.99% per annum. We are taking two different tenures of 5 years and 3 years respectively.
On considering the tenure of 5 years, the EMI amount will be INR 11,374 while the interest outgo will be INR 1,82,439.
Whereas on considering the tenure of 3 years, the EMI amount will be INR 16,845 while the interest outgo will be INR 1,06,404.
So, on choosing a shorter tenure of 3 years, you can save around INR 76,000 in the interest outgo over the tenure but you will have to pay extra INR 5,475 every month towards the EMI amount. But you should be earning enough to pay the increased EMI amount.
Opt for Prepayment Facility
The usual repayment method of a personal loan is Equated Monthly Installments (EMIs). An individual pays a fixed amount every month towards the loan repayment. However, sometimes people have extra cash at their disposal, they think to clear the loan before the fixed tenure by paying off the outstanding principal amount. This facility is known as the Prepayment. When people only pay a certain part of the outstanding amount, it is known as the Part prepayment. This is also one of the methods to ensure maximum savings on a personal loan.
Lenders usually charge a nominal prepayment fee but this facility allows individuals to save money on the interest outgo. We are showing an example so that you can understand the impact of prepayment facilities on a personal loan. Let’s say an individual has a 5-year personal loan of INR 10 lakh at an interest rate of 12.99% per annum.
According to these details, the EMI amount will be INR 22,748 and interest outgo will be INR 3,64,877.
Now, after 2 years, the individual wants to make the part prepayment of INR 4 lakh. At this time, the principal outstanding balance is INR 6,75,231 and interest paid till now stands at INR 2,21,722.
So, after paying INR 4 lakh, the new principal balance would be INR 2,75,231. For this amount, the new EMI would be INR 9,272. Other important details related to the prepayment are shown in the below table. Have a look.
|Part prepayment Amount Paid after 2 years||INR 4 lakh|
|New Principal Outstanding Amount||INR 2,75,231|
|New EMI amount||INR 9,272|
|Interest Outgo after prepayment||INR 58,572|
|Interest Paid till now + Interest for the remaining Tenure of 3 Years||INR 2,80,294 (2,21,722 + 58,572)|
|Estimated EMI Saving||INR 13,476 (22,748 - 9,272)|
|Estimated Interest Savings||INR 84,583 (3,64,877 - 2,80,294)|
The calculations in the above table clearly show that after paying INR 4 lakh, the individual can easily save INR 84,583 on the interest outgo.
So, these are some of the methods by which you can easily save a substantial amount on the Personal Loan. Apply these methods smartly.