How to reduce EMI burden
It’s advisable for borrowers to make lump-sum payments at least once a year, especially when you receive significant amounts like annual bonuses
For those with active home loans, managing the significant portion of monthly expenses allocated towards home loan EMIs is a known challenge. We will tell you some simple ways to lighten the burden of a loan:
Make part payments– You can pay a portion of the loan amount in lump sum. Paying 20-25% of outstanding loan in part payment can significantly reduce the principal amount. It will lower the EMI or tenure.
It’s advisable for borrowers to make lump-sum payments at least once a year, especially when you receive significant amounts like annual bonuses.
Illustratively, if you have an outstanding loan of ₹30 lakh rupees with 9.45% interest rate for 20 years, his current EMI is around 28,000 rupees. If he makes a part payment of 20%, i.e., 6 lakh rupees, his EMI could reduce to 22,300 rupees, lightening the monthly burden by 5,700 rupees.
You don’t necessarily have to make a 20-25% part payment; even 10% or less can make a difference. Many banks don’t charge any fees for making part payments on home loans.
If you’re facing difficulty in making part payments, you can ease the burden by increasing EMIs. This will reduce the interest load, helping you pay off the loan faster. Financial experts advise EMIs can be increased by 5 to 10 percent on annual basis. Another option is balance transfer. This will also help you reduce the burden of a home loan; consider transferring to a bank with a lower interest rate, but be mindful of associated charges.
Utilising strategies like these, one can expedite loan repayment, but avoid prepaying loans by taking a personal loans. You also get tax benefits on home loan. Additionally, prioritize clearing loans with higher interest rates, like car loans. Avoid missing any EMI payment to maintain a good credit score. Otherwise you may face difficulties in getting any other loan later on.