5 MinsSept 20, 2021
A personal loan is one of the best options when you need funds in a hurry. Malavika Shinde realised this when she was in urgent need of funds for an emergency. Thanks to her good credit history and stable income, her bank sanctioned her a loan of Rs 5 lakh in no time. She had taken the loan for a tenure of five years at an interest rate of 12%. Her EMI (equated monthly instalment) amounts to Rs 11,122 per year. It's been a little over a year now, but now Malavika feels she might be able to pay off her loan quicker. How can she do that?
Check the pre-payment clause
The first thing Malavika should do is to check if her loan has a pre-payment clause. Generally, most banks don't let you make a pre-payment in the first 12 months or charge you a penalty if you prepay the loan in the first 12 months. After that, most banks are pretty relaxed about pre-payments though a few might still charge customers a penalty.
Try and re-negotiate the tenure
The second thing Malavika should check is the amount of money she can prepay. For this, she needs to calculate the amount of money she can save and use to prepay her loan. For instance, if she finds out that she can save Rs 6,000-Rs 7,000 every month, she should call up her bank and re-negotiate for a lower tenure and increase her EMI payments. This will reduce her overall interest outgo.
Make regular pre-payments
If she can't re-negotiate her term, she should make monthly pre-payments to reduce her outstanding loan balance. Or if she can afford to repay a lump sum amount, say Rs 1 lakh immediately, she should do that. For instance, if Malavika gets an annual bonus or variable pay at the end of a year, she can use that to make pre-payments.
Transfer your loan
Another option for Malavika is to take another personal loan for a lower rate of interest and use it to pay off her current loan. But she should keep in mind the processing fees, etc, the new lender would charge, before transferring her loan.
While all of this sounds very easy, Malavika should never default on her EMI payments. To avail of any of the options mentioned above (especially re-negotiation and taking out another personal loan), lenders will check her credit score. If she misses out on EMIs or delays them, her credit score gets affected, making it difficult for her to apply and get loans sanctions for the next few years.
Axis Bank offers a range of Personal Loans tailored to meet the needs of most borrowers. To know more, click here. Calculate your EMI on a personal loan and know more.
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