How to Reduce EMI of Existing Personal Loan?

Personal loan interest rate in India can range anywhere between 9.99% to 24% p.a. As accessible and convenient as personal loans are to arrange for funds, the interest rate is the most influential factor that determines your EMI, repayment, and overall interest paid.

High personal loan EMIs also impact your monthly finances and limit your spending for other essential expenses. Without careful financial planning, the existing personal loan with high EMI may strain your budget and begin to feel burdensome a few months into repayment.

Reducing the EMI not only offers you more breathing space, but also saves on total interest paid. In this blog, we will learn how to reduce EMI of existing personal loans to alleviate financial pressure.

Why You Must Reduce Your Personal Loan EMI?

Lowering your loan EMI eases your financial stress and helps you maintain better cash flow. From balance transfer to personal loan top-up, there are different ways in which you can lower your EMI. Here are some reasons why you must reduce your loan EMI:

Reduced Monthly Financial Stress

Paying less EMI means your monthly loan repayment is affordable and easy to manage, reducing monthly cash flow stress.

Interest Cost Savings with Balance Transfer

You can save interest costs by making a prepayment or with a personal loan balance transfer. This saves the principal amount or interest rate and hence reduces the interest paid during the loan period.

Flexibility in Finances

Reduced EMI allows the release of funds to other necessary expenditures, investments, or rainy-day savings.

Improved Credit Score

Paying an easily affordable EMI will reduce the chances of loan default and improve your credit score.

10 Best Tips to Reduce Your Existing Personal Loan EMI

Here are the top tips you can follow to reduce your personal loan EMI:

1. Carefully Decide on the Loan Amount

Nowadays, obtaining a Personal Loan is easy and requires minimal documentation. While these factors may encourage borrowers to apply for a personal loan of a higher amount, doing so is not advisable, as it also increases the EMI and total interest paid.

Loan Amount	Interest Rate	Tenure	EMI	Total Interest Payable
₹5 lakh	12%	3 years	₹16,608	₹97,858
₹6 lakh	12%	3 years	₹19,644	₹1,07,156

 

This shows that borrowing ₹1 lakh extra for 3 years at an interest rate of 12% per annum increases the EMI by ₹3,036 and total interest payable by ₹9,298. Unnecessary borrowing can strain your monthly budget. Borrow a loan amount that is sufficient to meet your actual requirement to ease the repayment burden.

2. Choose the Right Loan Tenure

Your loan tenure is another significant factor that impacts your loan EMIs. Personal Loan tenures generally range between 12 and 84 months. If your lender agrees, you might also be offered a loan with a longer tenure. By opting for a longer tenure, you can spread your repayment over a more extended period, significantly decreasing your EMI and monthly interest payments.

Loan Amount	Interest Rate	Tenure	EMI	Total Interest Payable
₹5 lakh	12%	3 years	₹16,608	₹97,858
₹5 lakh	12%	5 years	₹10,872	₹1,52,273

 

For the same amount of ₹5 lakh and an interest rate of 12% per annum, you pay an EMI of ₹16,608 per month over a 3-year tenure and ₹10,872 for a 5-year tenure. As the tenure increases, your EMI reduces. However, the total payable interest rate increases from ₹97,858 to ₹1,52,273.

Choosing a longer term may lead to a higher interest amount than what you would have paid for a shorter tenure. Hence, it is necessary to strike the right balance between your loan EMI and repayment tenure.

3. Opt for the Fixed Interest Rate

There are two types of interest rates levied by lenders on a Personal Loan: fixed interest rate and floating interest rate. In the case of a fixed interest rate, the Personal Loan interest rate remains the same throughout its tenure.  

On the other hand, for the floating interest rate, your loan interest rate can change during its tenure as per the changing Reserve Bank of India (RBI) guidelines. If the interest rate goes up, your loan EMIs would also go up. That is why it is better to opt for a Personal Loan with a fixed interest rate, allowing you to plan your loan repayment in a better way.

4. Make Part Prepayments Whenever Possible

Making part prepayments on your loan is a smart financial strategy as it reduces the remaining loan amount. This also lowers your EMIs. You can prepay using the bonus from your employer, interest from your investments, etc, to make prepayments of your loan.

Many lenders may charge you a nominal fee whenever you make a part-prepayment of your loan. This fee can be approximately 4% of the outstanding loan amount. It is prudent to confirm the prepayment charges with your existing lender before applying for a personal loan.

5. Consider a Step-Down EMI Plan

Step-down EMI plan allows you to have a higher amount of monthly payments, which will reduce with time as the loan progresses. This is a strategy that aims at repaying the principal and interest at a higher rate in the initial periods of the loan.

This strategy will save a lot of interest that you pay overall during the tenure of the loan. It is especially useful for those who expect their income to decline shortly, which can include people approaching retirement or those intending to take a career break.

6. Opt for a Balance Transfer Loan

Balance transfer enables you to transfer your current personal loan to a lender offering you a lower interest rate or a longer repayment term, resulting in a much lower EMI. This would be a good choice, especially when the current interest rates are lower than when you borrowed your loan.

Balance transfers, however, can come with processing fees and prepayment penalties on the outstanding loan. You should determine the net savings after taking out the costs. Before switching, always compare the total cost of the new loan, inclusive of the fees, and that of the old loan.

7. Get a Personal Loan Top-Up at Reduced Interest Rates

In case you have been a frequent borrower with a regular EMI payment history, your existing lender can offer you a top-up loan. It is an extra loan amount on top of your current personal loan. Top-up loans are usually charged at competitive or lower interest rates, which are indicative of your creditworthiness.

This alternative allows you to borrow additional funds without the need to apply in full with little paperwork. Together with your existing loan, the top-up can be used to restructure or increase your financial assets at a reasonable EMI.

8. Review Personal Loan Terms Carefully Before Applying

Many lenders levy some hidden charges on a personal loan, which include processing fees, late EMI penalties, cheque bounce charges, etc. These charges may increase your personal loan EMIs. Thus, it is essential to read the fine print before applying for a personal loan.

You should also ensure not to miss out on paying any personal loan EMIs, as it helps avoid having to pay penalties and reduces your loan burden.

9. Debt Consolidation  

If you have multiple high-interest loans, consider consolidating them into a single personal loan with a lower interest rate. By consolidating your debts, you can streamline your repayment process, alleviating the stress of juggling multiple payments and due dates every month. It will not only help you plan your financial obligations better but also reduce the risk of missed payments. 

Opting for a Personal Loan for debt consolidation helps lower a significant portion of your monthly payments, allowing for better financial planning. It also enables you to allocate your savings toward other financial goals or unexpected emergencies.

10. Choose Your Lender Carefully 

The interest rate charged by your current lender plays a crucial role in determining your loan EMI. To reduce your EMI, aim to secure a loan at the lowest possible interest rate. Start by comparing Personal Loan interest rates from multiple lenders and choose the one that aligns with your financial profile.

If you have a good credit score, you may also negotiate with your existing lender for a lower interest rate. However, interest rate shouldn’t be your only consideration.

When exploring ways to reduce your loan EMI, also evaluate other key factors such as the loan tenure, repayment flexibility, part prepayment options, balance transfer facility, and the lender’s customer support quality. These aspects together influence your personal loan eligibility and overall borrowing experience.

Conclusion

Managing your personal loan EMI does not have to feel like a burden. By following these smart tips, you can gain control of your finances and find yourself on the path to financial freedom. The best way to reduce your EMI, however, is to get a personal loan at a lower interest rate. This is exactly what we at Poonawalla Fincorp offer: affordable personal loans with minimal paperwork and competitive interest rates. Apply for a personal loan now and take a step towards better financial management!

FAQs

What factors influence the EMI of a loan? 

The primary considerations include the interest rate and the duration of the loan. Additionally, the amount and any down payment made also impact the EMI amount.

Is it worth paying off a personal loan early?

Yes, by clearing off your personal loan early, you can save the interest and free up your monthly budget.

What is the impact of the down payment amount on lowering my EMI? 

The impact of your down payment on reducing your EMI varies depending on your lender's terms and the type of loan. Typically, a larger down payment decreases the total amount, which translates to lower EMIs throughout the repayment period.

Can I utilise mutual funds to reduce the EMI on my personal loan?

Yes, you can consider redeeming some of your mutual fund investments to make a partial payback on your loan. This reduces the outstanding principal, resulting in lower future EMIs or a shorter repayment tenure. 

Will my new lender demand a No Objection Certificate for a balance transfer on my personal loan?

Yes, your new lender will demand a No Objection Certificate (NOC) from your current lender. This document shows that your personal loan is eligible for transfer and that there are no outstanding payments.