Today, many people, especially youngsters rely on an instant loan to meet their financial goals. A personal loan may come in handy for both anticipated and unanticipated costs. However, before availing a personal loan you must consider your repayment strategy.
Your repayment strategy begins way before submitting your loan application. It begins with your budget estimation, loan research, interest calculation, and finally EMI affordability. You can use a loan app to make these smart calculations before getting into a debt commitment.
Read on to discover 7 smart financial tips that will help you pay off your instant loan faster.
7 Tips to Paying Off Your Personal Loan Faster
Here are the best tips you can use for paying off your personal loan quickly:
1. Make an informed borrowing decision
Before applying for a loan you must make sure to choose the right loan tenure and avail the loan at the best possible interest rate. Conduct thorough market research to find the lowest possible interest rate that you qualify for. You must also choose a tenure that makes your EMI affordable and keeps your total interest payout minimum. Ideally, your tenure should be 1 or 2 years.
2. Check Your Outstanding Debt
Before applying for a new loan, make sure to check your outstanding debts. This will not only impact your repayment ability but also impact the interest rate levied by your lender. Ideally, your total monthly EMI should not exceed 50% of your total monthly income. Apply for a new loan only if your existing debt is zero or minimal.
3. Understand your repayment Capacity
When applying for a personal loan you must have a practical and fool-proof repayment plan. Consider all aspects and risks of availing a loan. This may include job loss, a financial crunch, a disruption in your income, or another emergency etc. You must make sure to have 3 to 6 months of your EMI in your account to address a crisis.
4. Try to Pay More than the EMI Amount
Making an additional payment each year is a simple approach to guarantee that you pay off your instant loan as quickly as possible. Your debts will be paid off more rapidly if you make one extra EMI every year. The main balance and interest due significantly decrease with each payment, bringing you one step closer to paying off your debt.
5. Round Up Your Loan EMI
If you have multiple loan EMIs then you may consider rounding up the EMI amount. This will help you pay off your loan more quickly. Rounding off all your ongoing loans into one single loan will also help you save on the interest payout. It further makes repayment easier and helps you avoid missed EMIs. You can check out the loan apps for better interest rates.
6. Use a Bonus, Extra Income or Incentives to Make a Payment
Try paying off your debt with any income bonuses or other job incentives. You can opt for partial payments towards your loan or complete foreclosure. There is a nominal charge for this, but in most cases, it is very less as compared to the remaining interest payouts. However, note that most lenders require you to complete at least 12 months before opting for foreclosure or pre-payments. Also, not all lenders allow this. So, make sure to check these terms before availing the loan.
7. Think About Transferring Your Loan Balance
The cost of a loan is significantly influenced by the interest rate charged. In the past, you might have been forced to take a loan with a higher interest rate owing to a lack of available alternatives. You may move your loan over to a different lender if you find a lender offering a cheaper interest rate and better repayment conditions. We refer to this as a loan balance transfer. You could save money with a loan balance transfer thanks to lower interest rates and more palatable payback arrangements.
When determining whether to pay off a personal loan early, there are several factors that you must consider. First is the total interest payout on the loan. If the total interest amount payable is less then there is no meaning of foreclosure. Also, note that opting for pre-payment makes more sense during the beginning of your loan tenure as compared to the later part of your loan.
Note that a pre-payment will not impact your credit score negatively. It will help you get rid of the EMI burden and increase your eligibility for a new loan. So, if you are planning to avail a new loan for some other purpose then prepaying your existing loan can make sense. Thus, this entirely depends on your situation, whether you should opt for pre-payment or not.
Read Also: Difference between a Personal Loan and a Credit Card Loan