A personal loan is one of the types of loan which is multi-purpose in nature and can be availed without collateral. As much as it sounds interesting, a personal loan is ideal for individuals who are diligent and make timely repayments.

A personal loan debt burden is the last thing anyone would want and can drag you for years. In such scenarios, getting done with the loan would be the nicest thing to be done. Here are several ways to taper down your loan payments over time.

1. PRE-PAY YOUR LOAN AS MUCH AS POSSIBLE

Did you know any amount you pay above the monthly installments is deducted from the borrowed principal amount? If you are availing a loan with a high interest rate, your cost of borrowing will also increase correspondingly. Therefore, it is ideal to pre-pay your personal loan to lower the long-term interest cost.

2. PRE-CLOSE YOUR LOAN

In case you have liquid funds and money from other sources that can be used to pre-close the loan, close the loan as early as possible to save you thousands on interest costs and reduce your personal loan debt. Though there will be a cost associated with it known as a prepayment penalty fee, it gets lowered depending on the loan tenure. However, do take that amount into consideration before closing the loan.

3. INCREASE YOUR EMI

If you know that your income is going to increase over time, it is recommended to increase the EMI amount to reduce your personal loan debt burden. You can even ask your lender to increase your EMI periodically by 5% - 10% every year so that your repayments are timely and in order. Always remember, the higher the EMI, the faster the loan gets repaid.

4. LOANS WITH EMI WAIVER

There are certain financial institutions that offer time to time rewards to the borrowers for their consistent and timely repayments. This is generally in the form of 2-3 loan EMI waivers. However, this generally happens during the end of the loan tenure. It is also important to check with the lender before offsetting the discount. There are cases when such loans carry a higher interest rate.

5. NEGOTIATE FOR INTEREST RATES

Banks may sometimes not reduce the interest rate of your loan in lines with policy changes. For instance, if the Reserve Bank of India has lowered the repo rate by 50 points and your bank may just cut 20 points, then you must speak to your lender and negotiate for a better interest rate.

Personal loan debt can only be reduced with diligence and timely repayments. The only advice is to not let yourself fall into a debt trap.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.