If you have ever taken a loan, you can understand how bad it feels to pay EMIs every month from your hard-earned money. Whether you want it or not, you have to pay EMIs every month. Hence, it is very important to repay your loan faster so that you can live a debt-free and peaceful life.
We all need to take loans for some purpose or other, whether it is a home loan for purchasing your dream home or car loan for purchasing a new car or a personal loan for any emergency.
We all know that we have to repay these loans along with the interest amount. We repay these loans in the form of EMIs. These EMI amounts include both principal and interest. Initially, the interest portion on these EMIs is more than the principal. But with every EMI, the interest portion keeps decreasing and the principal increases. Hence, in the initial repayment period, we end up paying more interest amount than the loan amount. In this way, we repay our entire loan amount in a fixed period i.e. 5 years, 20 years or 30 years.
We need to pay these EMI on a pre-decided date every month. A single miss in EMI payment will result in a decrease in credit score significantly. And we need to pay a penalty too.
As a result, paying EMIs becomes one of the biggest financial burdens on most of the borrowers.
Here are some of the important methods that can help you repay your loan faster and release you from this financial burden.
Pre-Payment or Part Payment
If you receive extra funds like a yearly bonus or you have saved some amount, use it to repay your loan. This extra payment made above your EMI will reduce your principal loan amount. These payments are not used for paying the interest component of your loan.
Regularly making pre-payments, at least once a year can significantly reduce your loan amount. This will also help in reducing interest payments on your loan during the loan tenure.
Regularly making pre-payments will significantly reduce your loan tenure. However, you can choose to decrease your EMI amount. In this case, your loan tenure will remain the same but your EMI amount will decrease.
EMI is one of the largest monthly expenses for most of the borrowers. If you are facing difficulties in paying a large amount of EMI then it will be better to reduce your EMI amount instead of reducing your loan tenure.
This extra saving every month can help you to manage your monthly budget more comfortably.
Timely Payment
A missed or delayed EMI attract a penalty of 1-2%. Further, it also reduces your credit score. Paying penalty on your loan only increases cash outflow and it will also reflect in your credit report for many years. With your low credit score, you will face difficulty in getting a loan in future. Even if any lender agrees to give you a loan, the rate of interest will be higher. A higher rate of interest will result in a higher EMI amount.
So, if you are facing difficulties in paying your EMIs, please inform your lender before it gets reported in your credit report. Your lender will guide you through this. One of the options is that the lender may increase your loan tenure. It will certainly increase the interest payment on your loan amount but your monthly EMI amount will be reduced.
Reduce Expenses
Reduce your monthly expenses to allocate more amount to your loan payment. Review your budget and if possible, reduce your unnecessary expenses. Allocating more funds every month on your loan repayment will help you to repay your loan faster.
Refinance your Loan
If you have a loan with a higher interest rate then you can consider refinancing it with different lenders with a lower rate of interest. This will not only save your interest expenses but also help you to reduce your loan tenure.
Refrain from taking a New Loan
Taking a new additional loan will increase your EMI expenses. Initially, you were paying EMI for one loan and after taking a new loan, you need to pay EMI for this additional loan. This additional EMI amount increases the financial burden on your monthly budget.
When paying off your existing loan, refrain from taking additional loans. This additional loan will increase your financial burden and hamper your goal to repay your loan faster.
Increase the EMI amount
When you take a loan, the EMI amount is calculated based on your income at that time.
With time, the income of an individual increases. With a higher income, you are capable of paying higher EMI. You can choose to increase your EMI amount. A higher EMI amount decreases your principal loan amount much faster. This will save a lot of your interest expenses and reduce your loan tenure.
Every time, when your salary or income increases, plan whether you can increase your EMI amount or not.
Please remember that before going for this option, pay attention to your plans.
It may be possible that with the increased income, your monthly expenses also increased. In this scenario, increasing the EMI amount may not be a good option for you.
Loan tenure: Your loan tenure is an important factor in calculating your EMI amount.
A long tenure results in a lower EMI amount. You have to pay a higher interest amount on your loan amount but you will be comfortable paying your EMI every month.
On the other hand, a shorter tenure will save a lot of interest amount and you can repay your loan faster. However, with a shorter tenure, your EMI will be much higher.
If you are comfortable with a higher EMI amount, then opt for a shorter tenure. This not only helps you to save a lot of interest expenses but also helps you to repay your loan faster and make your debt free.
Conclusion
We all have dreams of living a debt-free life. But it is also true that we need loans for various purposes.
With a higher EMI amount, shorter tenure and timely payments of loans, you can repay your loan faster. I hope this post is helpful for you. If you have any suggestions, please comment on this post. It will be helpful for all of us.
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