5 simple ways to reduce your Personal loan burden

A personal loan is widely preferred by the customers in India due to the benefits it provides such as simple processing, the fast disbursal, and minimum documentation, etc. This unsecured loan is availed by many borrowers to finance any emergency situation. Although the rates of interest on personal loans are higher and if you couldn’t repay all the EMIs in time, this would surely obstruct your monthly budget.

Also, with the untimely repayment schedule, your credit score can backfire you someday. Therefore, if you adhere to simple steps, you may be able to make the repayments of a personal loan without any stress or hassle. Read out some methods that can assist you in planning your repayments schedule before you Apply for a Personal Loan so that you cannot default any of them:

(1) Debt Snowball Method

This method is quite popular and advocated by financial experts for paying debts more proactively. Visualize yourself that a snowball rolls down from the mountain top. It accumulates more layers of dust particles once it rolls down and attains the shape of a huge ball on reaching the bottom. Similarly, you need to concentrate on smaller debt before settling out the bigger ones. The small debt is just like a snowball that features on the top of the list and the higher loan amount is like the huge ball that comes at the end.

(2) The Stack Method

This method is effectively adopted by the borrowers to repay their debts. Suppose you have accumulated debts at varying interest rates, your priority remains in repaying the higher interest loan that is costly than others. Once you paid off the costlier loan, you can go on to the lower interest loan so that you may free yourself from the debt burden.

You can make a selection between the above two methods subject to your ease and debts. This is one of the effective methods of minimizing your personal loan burden.

(3) Prepay Your Personal Loan

Personal loans can prove to be a burden for you, especially at higher interest rates. You can opt for prepaying the loan thus to minimize your loan burden. When you make a prepayment, you are only repaying the remaining balance. This may also levy a fee of a specific percentage of the loan amount.

Prepayment on your personal loan is advantageous only if you prepay at the very beginning stage of the loan tenure after the lock-in period that spans between 6 to 12 months. Your equated monthly instalment is a combination of both principal and interest amount. The EMIs are arranged in a way that more amount is deducted for paying interest and less for the principal. Once you have passed half of the prepayment tenure, if you wish to prepay the personal loan, you would be having with you a more principal amount than the interest that is not in any case beneficial for you. Always try to seal for the earliest pre-closure so as to avail more benefits.

(4) Personal Loan Balance Transfer

This is the method of shifting your personal loan from your current lender to another lender for getting a lower interest rate.

This is like opting for a new loan at a lower interest rate and settling off the higher interest rate loan. You are permitted to do the personal loan balance transfer only after you have crossed the lock-in period. Just like personal loan prepayment, the benefit of a balance transfer is availed only at the very beginning period of the loan tenure.

You must also know that a certain fee is applicable on balance transfer that consists of prepayment charges from the current lender and processing fee from the new lender. You need to calculate all the interest rates, fees and loan repayment charges of the new lender, etc to estimate the amount you can save from the balance transfer. Only do the balance transfer of your personal loan, once you are assured that it is beneficial for you.

Balance transfer has another merit that you can either extend or cut-short your loan tenure with the new lender. If EMIs is proving to be a burden on you, you can extend your tenure to lower down your EMIs. On the other hand, if you want to repay your debt quickly, you may cut short the tenure and increase the EMI amount.

(5) Part Prepayment

There are only few lenders who enable you to make part prepayment on the personal loan. You need to approach your lender to know if there is any part-payment facility available on your personal loan. An increase in salary, bonus or savings can allow you to make Part-Payment on your Personal Loan and as a result, minimise your interest payment. However, there may be a small percentage of the fee levied on making part-prepayment.

(6) Debt Consolidation Loan

If you have piles of debts and are paying various EMIs, you may be paying exorbitant amount out of your income every month. You can opt for a debt consolidation loan that helps you to clear all your debts by making a single payment each month to only one lender

The debt consolidation can help you minimise your personal loan burden. The loan amount will be huge and so the tenure will be longer. However, it will soothe out some burden on you as you would be paying only for a single loan.

(7) Secured Loans to clear off Personal Loan

You may opt for secured loans such as gold loan, home loan, LAP, loan against insurance schemes, mutual funds etc, that may have a lower rate of interest as compared to a personal loan. You can choose any one of the secured loans and settle your higher interest rate personal loan. Your new loan will be having a lower EMI at the same tenure that keeps your stress at bay from the personal loan burden.

Personal Loan interest rates

The various personal loan interest rates offered by the lenders are :

· SBI Personal Loan : SBI Personal loans are offered at a 10.50% rate of interest to its customers.

• ICICI Bank Personal Loan: These loans are offered at the interest rate that ranges between 11.25% — 18%.

· IDFC First Personal Loan : 11.50% rate of interest is extended on IDFC First Personal Loan.

• HDFC Personal Loan: Interest rates extended on HDFC Bank Personal loan ranges between 10.75% — 14.99%
• Axis Bank Personal Loan: 12% to 24% rate of interest is provided on Axis Bank Personal loan for a tenure of more than 3 years.