Let’s consider a situation. You plan to renovate your home but a liquidity crunch is delaying your plans to do so. You do not want to delay the renovation anymore and decide to take a personal loan. After completing the required paperwork, you acquire the personal loan amount for a tenure period of four years. When your first repayment is around the corner, you realize that you have taken the loan for a much larger tenure than you actually should. You do not want the loan to stick with you for a long time. What can you do in such a case?
You should consider prepaying your loan amount if your savings combined with your salary allow you to do so. The first reason why paying off your debts early is beneficial is because you will save thousands of rupees every month on interest payments. Secondly, when you pay off your debt early, you will be free of the burden of making loan repayments every month. The most important thing is that you will pay less amount of interest over the term of the loan.
Thirdly, making a larger repayment every month is a good strategy specifically for people with low credit scores. When you make regular payments, your credit history improves gradually. A higher credit score means that you will be able to secure loans easily in the future. Finally, when you are using up most of your money to make prepayments, you will naturally get debt free before your loan term ends. This can help you to accumulate most of your funds to accomplish long-term financial goals.
Related: Get Low Interest Loans
Let us look at ways in which you can pay off your loan early:
1. Make bi-weekly payments:
You can start by making payments every two weeks instead of making monthly repayments. These are termed as bi-weekly payments. Also, you can consider refinancing your loan so that you save up money on interest. In short, use extra cash from your bonuses, tax refund money and monthly savings to pay off your debt early.
2. Prepay your Loan:
You can pay off your loan amount either by full prepayment or part prepayment of your loan. Full prepayment means paying the full amount of your loan before the due date. It is recommended when you have the cash available to cover your entire outstanding principal amount. It helps you save money on interest. On the other hand, part prepayment is advisable when you have cash availability but it is not enough to cover the entire outstanding principal amount. A part prepayment helps you to lower down your principal amount which means you can reduce your EMI.
3. Pay off your most expensive loans first:
This will help you get debt-free faster as you will be left with the least expensive loan after a point of time. Paying off the most expensive loans first will provide you with psychological satisfaction and motivation. Moreover, you will be left with enough cash to pay off your least expensive loan and become debt-free sooner.
4. Round up payments
This is the easiest and the most effortless way to pay extra money to the lenders by rounding up your EMI. For example, your personal loan payment is Rs. 464.12 but what you need to do is rounding it up to Rs.500. After a time it will add up to a huge amount, which will save your money in terms of interest by shortening the loan duration. Do not pay small amount Bi-weekly, try to round it up.
5. One Extra Payment
Since bi – weekly payments are not possible for many, you can choose to pay one extra payment every year by using up your festival bonus or tax refunds. You can also try dividing your EMIs for 12 months and add up a significant amount to your monthly EMIs. For example, if your monthly personal loan EMI is Rs. 280 per month, you can add up to Rs. 20 every month which will round it up to Rs. 300. Each payment would increase by Rs. 20, almost summing up to one extra payment.
6. Budget & Schedule your Expenses
Making a budget and scheduling your expenses plays a crucial part in your financial life. It helps you relocate your funds to basic needs by cutting out all the unnecessary expenditures. Budgeting helps you keep in a record of your income and expenditure and use these funds to pay off your EMIs.
By following all these tips and tricks to pay off your loan faster, you should be able to make easy repayment. You can get the loan off your back as soon as possible, and not have to worry about paying EMIs every month.
