Availing a personal loan today is easy, convenient, and accessible. You do not need to go through a painstaking process to get the loan financed. You just need to meet a handful of requirements for getting your loan approved and processed within minutes. This has helped many individuals to meet their ever-increasing financing needs conveniently with a personal loan. Furthermore, the introduction of dedicated loan apps has amplified easy financing. With the surge in demand and rising competition in the financial market, many lenders have come up with interesting offers that can help you save big on your loan.
While availing the loan at a low-interest rate is the best way to go forward, you can still save on your repayments after having borrowed the advance. One of the finest ways to do so is to aim for the reduction of your total interest outgo.
Here are some ways in which you can reduce your total interest payable on personal loans.
7 Ways to Reduce Your Personal Loan Interest Outgo
- Choose the right tenure
The loan tenure is one of the key factors that contribute to the overall interest accumulation. Since it is so closely tied, a long tenure means high-interest outgo and a shorter tenure means high-interest rates. Thus, it is advisable that you select a tenure that remains just right for interest affordability. You can use a personal loan EMI calculator available with reputed loan apps to assess your tenure suitability based on the total interest payable calculation.
- Choose incremental EMI payability annually
Usually, when selecting an EMI schedule for a personal online loan repayment, individuals tend to select EMIs that are the lowest and carry the most affordability in immediate terms. However, reducing the EMIs also means extending the tenure to accommodate the total loan liability. As a result, this leads to high-interest accumulation as an overall impact.
Thus, when choosing the EMI schedule, it is ideal to go for a schedule that makes way for repayment of incremental EMIs on an annual basis. It means that you end up paying the EMIs in increased amounts every year as per your affordability. You can also choose to increase your EMIs every year as per your income changes and repay the loan with low-interest accrual.
- Make a prepayment of your loan (Foreclosure/part-prepayment)
Prepayment is another great way to go forward with enhanced savings on your total interest outgo. Under the prepayment facility, a lender allows you to repay the loan in a lump sum instead of in EMIs at any time before the tenure ends towards the total loan liability reduction.
You can either choose to part-prepay your personal loan or foreclose the loan account entirely through complete liability repayment in a lump sum. The facility ultimately affects such savings through the total tenure reduction, thus bringing down the interest payable. Make sure to check the costs of availing such a facility and determine feasibility accordingly.
- Opt for a balance transfer facility
If the current market rates are trending towards a reduction and you are servicing your loan at a higher rate still, it is ideal to look out for a balance transfer of your outstanding loan liability. The facility allows you to refinance your outstanding liability at a reduced rate of interest, which in turn brings down the total interest outgo. The facility also allows you to redo the terms of your loan for favourable repayments.
However, before opting for this feature it is important to check all the charges and fees associated with it. Your existing lender may charge a foreclosure fee and your new lender might charge a processing fee. So, make sure your savings on interest rate is more than the sum of all these fees.
- Choose floating rate levy system
In case you availed a personal loan where interest is calculated at a fixed rate, it is ideal to switch to the floating rate system of interest rate levy. It is because irrespective of the market rates and trends applicable, the fixed rate levy often attracts interest rate levy a notch higher than the floating rate.
Make sure to talk to your lender and get the details before opting for this. You must also do your market research to choose the lender that offers the most flexibility.
- Keep auto-pay activated
One of the most common places where a borrower ends up paying a penalty amount is due to missed EMI payments. It is a smart idea to enable autopay for the EMI amount, as it will take care of your payments on time, else with so much on your plate missing the date is quite common and the penalty on missed EMI payments is huge. So, the simplest way to avoid paying penalties is by activating the auto-pay feature.
- Consolidate your debt
If you have availed multiple small personal loans and repaying them at varied rates, chances are high that the total interest outgo for all the loans combined is high. You can thus choose to consolidate these running debts into one by availing a personal loan of high value at a rate lower than the average of all payable rates. It should bring down your interest outgo significantly.
Personal loans are powerful financial tools, that can benefit you in many ways. But you need to know the deets of a personal loan to make the most out of it. Some loan apps today provide personal loans at an attractive and affordable rate of interest, which can keep your interest outgo in check. For overall affordability, you can also check out for tax deductions applicability for the advance.