Most of us have one loan or the other with us. It could be a car loan, home loan or a personal loan. Some loans could be long-term obligations such as home loans. EMIs to repay these loans usually take out a big portion of our monthly salary. It would be really nice to be done with these loans as soon as possible. Here are some easy tips to help taper down the loan payments over a period of time.
Pre-payment of loan
It is a good practice to pre-pay your loan periodically. This will lower the long-term interest costs and will help you get out of the loan quickly. One main thing to consider while making pre-payments is to make the payment when the interest rates are dropping. This way you can clear off that portion of your loan at a lower interest rate, which is more profitable than pre-paying at a higher interest rate.
Pre-closure of loan
Usually, there are no pre-closure charges for a home loan with most banks. So, it is better to pay the remaining balance of the home loan including all pending dues when you have enough cash in hand. However, this is not the case with other loans such as car loans or personal loans. These loans most likely have some charges attached while pre-closing the loans. Make sure to include those charges while calculating for pre-closure of the loan.
Increase the EMI
Another good option is to increase the EMI amount. You might get a salary increment or your salary package with the new company that you have shifted might be higher. In such cases, make use of the additional amount that you are sure to get every month to increase the EMI amount of your loan. This will help you to close your loan sooner.
Transfer your loan to another lender with a lower rate
From time to time some banks offer lower interest rates compared to some other banks for the loans. Keep checking for such offers and transfer your loan to a bank with a lower interest rate. While doing so, do not forget to include the processing fee and also the pre-closure charges with the current bank before transferring your loan.
