7 proven ways to reduce your personal loan EMI

Managing personal loans through EMIs is key to financial stability and saving borrowed money in the long run. Heavy EMIs can play havoc with your monthly budget, but there are useful tips to ease the burden. To make your financial life simpler, this article discusses some ways to lower the EMIs of your current personal loan.

1. Choose a loan balance transfer

Shifting your existing loan amount to another lender with a lower interest rate is one effective way to reduce your EMIs. This process, known as a balance transfer, can significantly reduce the total interest that will have to be paid over the lifetime of the loan and your monthly instalments.

2. Choose a flexi hybrid loan

When you convert your existing personal loan into a flexi hybrid loan, you should be able to enjoy more flexibility in your repayment period. With this, you can easily lower your cash outflow on a monthly basis by simply selecting interest-only EMIs for part of your loan term.

3. Make part payments

Part-prepaying means paying the loan more than you normally pay in EMI on the payment due date, reducing the outstanding principal immediately. Contact your lender prior to executing a part-prepayment to determine if you have any pre-payment fees or penalties.

4. Extend your loan tenure

You can choose to enhance the tenure of your loan and thereby extend the repayment period, which will lower your EMIs and make the monthly burden easy to manage. However, keep the long-term total cost of interest in mind, as a longer tenure may lead to a higher total interest.

5. Consolidate your debts

Consolidating multiple debts with different interest rates and EMIs into one personal loan would simplify repayment and also lower your overall EMIs. Consolidating debts into one debt, at a lower interest rate, simplifies your debt management and lowers your monthly payment.

6. Negotiate with your lender

Sometimes talking to your lender can lead to better loan terms. During a financial crisis, you can have your EMIs lowered temporarily or have the interest rate lowered if you demonstrate good repayment behaviour. Lenders often value proactive borrowers and may provide options to help you manage the loan better.

7. Refinance your loan

Refinancing allows you to repay an existing loan with a new loan, often with better terms or a lower interest rate, which would save you interest amount and lower your EMIs overall. However, higher costs of refinancing should also be considered when deciding if refinancing is or can be effective long-term.

Borrowers can practice the 30% EMI to further improve the repayment experience. This is just another creative way to lower loan interest rates and manage debt effectively.

What is the rule for 30% EMI?

The 30% EMI rule is a simple guideline for managing personal loans, home loans or car loans. This rule suggests that your overall monthly EMI should not exceed 30% of your net monthly income.

Practising this rule will ensure you have enough savings left to meet other vital expenses and avoid financial stress. Following this rule boosts creditworthiness. It also helps in maintaining a healthy credit score and brings down the risk of default.

Lending institutions also check this ratio while approving loans, making it a key eligibility factor. Before providing borrowers with new loans, lenders analyse how debt is managed and repaid. The main goal is to ensure that the borrower is a reliable individual and that the chances of default are negligible. Only after cross-verifying these facts, lending institutions permit the approval of new loans.

In conclusion, reducing the EMI on your existing personal loan requires a considered approach based on your finances. It's crucial to have a strong sense of your financial goals and discuss them with your lender, and review the terms as part of your decision-making process.

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