In today’s time, taking a loan for home, car, education or other needs has become much easier than before. However, as easy as it is to take a loan, paying its monthly installment (EMI) can prove to be equally challenging. Many people choose long term (tenure) loan due to the attraction of low EMI, which provides initial relief but in the long run they have to bear heavy burden of interest. Financial experts say that with the help of proper planning and some wise decisions, the loan can be repaid quickly and interest worth lakhs of rupees can be saved.
If you get extra money, make prepayment
If you get extra money through bonus, incentive, tax refund or any other means, it may be a better option to use it for pre-payment of the loan rather than spending it. This reduces the principal amount and future interest also reduces.
Avoid choosing too long a tenure
For low EMI, many people choose a long loan tenure of 20 to 30 years. Due to this, the installment every month remains less, but the total interest increases significantly. Therefore, you should choose such a tenure in which the EMI is comfortable as per your income and the interest burden does not increase unnecessarily.
Take advantage of low interest rates
If a loan from another bank or financial institution is available at a lower interest rate than your existing loan, balance transfer can be considered. This can reduce interest costs and help in repaying the loan quickly. However, before transfer, be sure to get complete information about processing fees and other charges.
Higher down payment will reduce the burden
Making a higher down payment while purchasing a home or vehicle is always considered beneficial. This reduces the loan amount, due to which both EMI and total interest reduce.
Consider increasing EMI also
If your income increases over time, some increase in EMI can be considered. This will reduce the loan tenure and the interest expense will also reduce.
Financial discipline is most important
According to experts, the best way to keep loans from becoming a burden is financial discipline. Before taking a loan, assess your income, expenses and future needs. A loan taken with proper planning can meet your needs, while a loan taken without preparation can cause financial stress in the long run. In such a situation, if you want to finish the loan quickly, then you can save big by adopting strategies like pre-payment, right tenure, low interest rate and higher down payment.