5 MinsSept 30, 2021
Last year, Paresh Ganguli, 32, had availed of a personal loan to help fund his sister’s wedding expenses. He had borrowed Rs. 5 lakh for three years at 17% interest. He has been paying an EMI of Rs. 17,826.
Paresh, however, is keen to ensure the loan is paid off faster. One of the reasons is that he and his wife Shweta are planning to buy a flat in a couple of years and are aware that an ongoing EMI for a personal loan may adversely affect their
home loan eligibility.
He wants to know ways he can pay off his personal earlier. Let us see what his options are:
Increase the EMI
Paresh could round off his EMI amount and increase it to Rs 20,000. The additional outgo of Rs. 2,100 odd is unlikely to make a massive dent in his family's monthly budget. On the other hand, the bank will
adjust this additional money towards his principal amount outstanding. Reducing the principal would reduce his interest burden and he would be able to pay off the loan faster. If he can afford it, he can increase the amount to Rs. 25,000 per
month, thereby making a more significant dent in the outstanding principal. Paresh is in a sales job and is entitled to incentives if he met targets set by his employer. If Paresh wants to repay his personal loan faster, it might be good to
use these incentives to enhance his EMIs. He could do the same as and when he gets an increment, and his salary increases.
Use additional income to make a part payment
Around Diwali time, Paresh's company gives all its employees a bonus, depending on their and the firm's performance. Going by past records, Paresh is expecting a bonus of around
Rs. 75,000 to Rs 1 lakh. He could use this bonus to make part payment towards the principal outstanding on his loan. He could do the same if he has any other windfall gains – an inheritance or a sudden appreciation in one of the stocks
he is holding.
Borrow from his PPF account
Paresh opened a Public Provident Fund account in 2016. During this period, he has accumulated a decent corpus in his PPF account. PPF rules allow an account holder to take a personal loan between
three and six years of opening an account. The interest rate on such a loan is only 1% more than the interest applicable on PPF (currently at 7.10%). Paresh can borrow from his PPF account and partly pay off his personal loan, which has a
higher rate of interest.
Most banks charge a pre-payment fee and hence, Paresh should carefully compare this with the interest he will save by pre-paying his personal loan in part or full before deciding.
Axis Bank offers a range of Personal Loans tailored to meet the needs of most borrowers. You can calculate your EMIs with apersonal loan calculator and Axis Bank's EMI calculator.
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