5 easy steps to reduce personal loan EMI and save money

Are you someone facing high monthly instalments? To combat such a situation, borrowers with active personal loans can take several sensible and strategic steps to lower EMIs, resulting in improving their finances and improving their budgeting flexibility.

Elucidating on the same, Yashoraj Tyagi, CEO, CASHe, says“To reduce EMIs on ongoing personal loans, borrowers can part-prepay, opt for a balance transfer, extend tenure, or negotiate lower rates. Step-down EMIs and top-up loans at better terms can help too. A healthy credit score and comparing lender offers regularly can unlock lower EMI options.”

What is a personal loan EMI and why can it become a burden?

A personal loan EMI (Equated Monthly Instalment) is the fixed amount that a borrower repays on a monthly basis for a loan, combining principal along with the interest. Now high EMIs can strain household budgets, day to day expenses and negatively impact credit scores if the payment is not managed effectively.

Five effective strategies to reduce EMI

• Balance transfer to a cheaper lender: Transferring your outstanding loan to another bank or financial institution providing lower interest can significantly help in reducing EMI payments. Hence, going for a balance transfer is one of the most effective steps to cut a loan’s monthly burden.
• Extend the loan tenure: You can also aim at increasing your repayment period. In this you spread payments over a longer duration of time thus lowering the monthly EMI and bringing the loan burden down. Still, do remember, such steps may increase the total interest paid by you on your outstanding loan amount.
• Part-prepayment of principal: In this technique, you can use surplus funds such as bonuses, arrears or windfalls to quickly make partial pre-payments thus reducing the outstanding personal loan principal. Such proactive payment can help you in lowering EMI and even shorten repayment tenure. Several banks and financial institutions provide borrowers with pre-payment opportunities after a few initial EMIs. Banks such as Yes Bank, ICICI Bank, HDFC Bank among others provide borrowers with part pre-payment services.
• Opt for a step-down EMI plan: Now opting for a step down EMI plan is another extremely efficient way to reduce EMIs. Banks such as HDFC Bank, Kotak Mahindra Bank, ICICI Bank among others provide a step down EMI option for borrowers to explore. Under this, higher instalments are made early on, which then gradually reduce over time as principal repayment progresses.
• Debt consolidation or top-up: When faced with a situation where several multiple smaller loans crop up, then all such loans can be consolidated into one personal loan with lower rate and extended tenure, thus simplifying repayment and often bringing the cost of monthly EMIs lower.

What should borrowers watch out for?

• Carefully compare the overall cost, lower EMI might mean higher interest payments on a cumulative basis.
• Check out for transfer or pre-payment fees when you are aiming to shift or pay early.
• You can also use personal loan EMI calculators available on the websites of leading banks to model different scenarios before making a financial commitment.
• Never over-extend repayment tenure. Do ensure monthly instalments remain prudent, affordable and creditworthy.

Why do these steps matter?

These steps matter because with rising borrowing costs, borrowers are increasingly aspiring to seek ways to reduce monthly obligations, bring EMIs down and make their finances better.

To facilitate the same, these strategies not only improve monthly cash flows but also protect credit profile, boost credit scores and improve financial health when deployed strategically.

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