5 Ways To Quickly Repay Your Personal Loan
Clearing loans faster helps you in minimising interest charges on the remaining amount. Know the 5 quick ways to repay your personal loan!
Loans are perfect solutions to get over financial crises, but repaying the debt can consume a substantial amount of the monthly income. Moreover, a single delayed EMI can mar the credit report and can make it difficult to secure a fresh loan in the future.
Usually, the interest rates on personal loans are lower than credit card debt but higher as compared to home loans and gold loans. While individuals with good credit scores can qualify for personal loans at competitive interest rates, others may still have to pay higher rates of interest. So, borrowers need a proper repayment strategy to get out of debt in the minimum possible time.
Here are a few ways to quickly repay a personal loan:
1- Opt For Lower Interest RatesThe method of interest rate calculation varies from lender to lender. While some use the flat interest rate method, others charge loans on the reducing balance rate method. Regardless of the method of calculation, a personal loan with a higher interest rate costs more. For the best deal, individuals can visit the websites of different lenders and then find out who is offering better rates.
Another viable option that borrowers can look into is a loan transfer. If the present lender refuses to lower the interest rate, switching the personal loan account to another lender could be a good idea. With a loan balance transfer, borrowers may save money with better interest rates and affordable repayment terms.
2- Full or Partial PrepaymentPrepayment is another great option to pay the loan prior to the expiry of the loan’s due date. Generally, all personal loans are short-term loans with a repayment tenor of 12 to 60 months. Most financial institutions allow their customers to foreclose a loan after a minimum lock-in period. For prepayment of a personal loan, borrowers may have to pay a nominal price as prepayment fee to be debt-free.
Borrowers who do not have adequate cash to clear the total outstanding balance in one go can choose partial prepayment on a personal loan. It can help to lower the debt burden and also the amount of interest that one pays on the total outstanding amount. Loan prepayments work best only if done during the initial years of the loan tenor.
3- Debt ConsolidationManaging several loans at a time can be risky. One missed payment can adversely impact the credit score. For those struggling with high EMIs on multiple personal loans, debt consolidation is an ideal way to deal with it. It is the process of merging multiple debts into a single debt. Through this process the borrower can club all the payments into a single payment from one lender, instead of making separate payments to individual lenders every month.
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Debt consolidation helps to streamline repayment as borrowers need not make repayments on varying interest rates. In most cases, borrowers end up paying lesser interest with a debt consolidation.
4- Reduce The TenureA good way to utilise an increase in salary or bonus is through reducing the tenure on loan. Lessening the tenor even by a few months can help to save more.
5- Increase The EMI AmountBorrowers can choose to pay a little extra after paying the regular EMI to clear off the outstanding balance quicker. It can be done through two ways.
The first is by increasing the regular EMI amount to some extent. However, before proceeding, borrowers must thoroughly analyse their repayment capability as it involves the risk of possible default. An increase in the amount of EMI reduces the overall cost of the loan.
The second way is to pay an extra EMI every year. Paying an extra EMI lowers the principal component and also reduces the loan tenor.
ConclusionPersonal loans are excellent financial tools for borrowers who need quick money. Though the benefits of a personal loan may outweigh the risks, it is good to pay attention to its repayment because paying off a high-interest debt every month can make it hard to accomplish the financial goals.
There are many different ways to manage a debt like transferring the loan account to another lender that offers the loan at a lower interest rate and increasing EMI payments whenever possible.
For better liquidity and convenience of customers, IIFL Finance offers customized loans with flexible repayment plans. Borrowers can make the repayments of the outstanding loan amount by choosing the online payment system. Also, through IIFL Loans Mobile App, customers can get a complete summary of their account statement from anywhere and at any time so that they can keep track of their repayments and outstanding amounts.
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