How To Reduce EMI Of Existing Personal Loan

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Feeling the pinch of hefty personal loan EMIs every month? You’re certainly not alone. Personal loans, while convenient for various needs, can come with significant monthly payments. But fret not! This blog explores various methods to help you reduce your existing personal loan EMI in India, so that you don’t have to struggle with the question, “How to reduce EMI of existing personal loan”.

Understanding Your EMI

Before diving into reduction strategies, let’s understand what EMI (Equated Monthly Installment) actually is. It’s the fixed amount you pay towards your loan every month. This payment covers both the principal amount you borrowed (the actual money) and the interest charged on it. Simply put, the higher the loan amount, interest rate, or repayment tenure, the higher your EMI will be.

How is my EMI calculated of Existing Loan?

Your EMI of a loan can be calculated using the following formula:

EMI = (P x R x (1 + R) ^ N) / ((1 + R) ^ N – 1)

Here,

• Principal Amount (P): This is the total sum of money you borrow from the lender.
• Interest Rate (R): This is the interest you pay on the loan, typically expressed as an annual percentage rate (APR). The lender charges you this fee for borrowing their money.
• Loan Tenure (N): This is the total duration of your loan, usually specified in months or years.

Example:

Let’s say you borrow a personal loan of Rs. 5,00,000 for 5 years (60 months) at an annual interest rate of 12%.

• Monthly Interest Rate (R) = 12% / 12 = 1% (as a decimal)
• Loan Tenure (N) = 60 months
• Estimated EMI (using the simplified understanding, not the exact formula):

EMI = (Rs. 500,000 x 1% x (1 + 1%) ^ 60) / ((1 + 1%) ^ 60 – 1)

This calculation will give you an approximate value of Rs. 11,122.22, which will be your EMI. You can use an EMI calculator available online by Credmudra for a more precise figure.

Moving to the main question of:

Also, Read: Personal Loan for 8000 Salary : Step By Step Guide

How To Reduce EMI Of Existing Personal Loan?

Here are five strategies to lower the EMI on your current personal loan:

5 Methods to Reduce EMI of Existing Loans:

Now, let’s explore some effective ways to bring down your EMI burden:

1. Opt for a Balance Transfer Loan: If you find a lender offering lower interest rates, you can transfer your loan to them. This could also extend your repayment period, further lowering your EMIs. Just make sure to consider any transfer fees or charges.

2. Make a Partial Prepayment: After paying a certain number of EMIs, usually 12-13, you can choose to prepay a part of your loan. By paying off a big portion of your principal early, you reduce the remaining principal and interest, which in turn reduces your EMI. Using yearly bonuses for this can help lessen both your EMI amount and loan duration.

3. Choose a Step-Down EMI Plan: This plan starts with higher EMI payments that decrease every year. Initially, you pay off a large part of the principal and interest, which lowers your EMIs over time. It’s especially useful for those nearing retirement, enabling them to pay off the loan while they still have a regular income.

4. Get a Top-Up Loan with Lower Interest Rates: If you’ve been paying your EMIs on time, ask your lender for a top-up loan at a lower interest rate on your existing loan. This not only gives you extra funds but could also extend your loan’s term, potentially reducing your EMIs.

5. Longer Repayment Period: Choosing a longer repayment period for the same loan amount spreads the cost over more time, which lowers your monthly payments (EMI). However, a longer loan term means paying interest for a more extended period, which can increase the total interest paid. Be careful when extending your loan term; while it reduces your monthly expenses, it might lead to higher overall costs. A lower monthly payment is not always better if it results in a longer repayment schedule.

In wrapping up, this blog aims to lighten the load of your personal loan EMIs with several strategies, from balance transfers and prepayments to adjusting your repayment terms.

We hope these tips offer some relief and smarter ways to manage your debt.

Did you find these suggestions helpful? Feel free to share your thoughts and whether this blog made navigating your financial path a bit easier. Your feedback is invaluable to us!

Also, Read: Get Personal Loan Without Income Proof

FAQs:

1. What Occurs If I Skip An EMI Loan Installment?

If you don’t make a loan installment payment on time, you may face extra interest and late fees.

2. Does Not Paying My Loan Installment On Time Lower My Credit Rating?

Yes, if you don’t pay your loan installment when it’s due, it will be noted in your payment history, and your credit score will be lowered.

3. How Much Does My Credit Score Go Down If I Miss One Payment?

Missing one payment can lower your credit score by 60-70 points.

4. What Influences the Monthly Installment Amount of A Loan?

The monthly installment (EMI) of your loan is influenced by several key factors, including the interest rate and the loan’s duration. Additionally, the total loan amount and the initial down payment you make also play crucial roles.

5. Which Interest Rate Type Results in A Smaller Monthly Payment, Variable or Fixed?

Usually, loans with a variable interest rate have lower monthly payments compared to those with a fixed interest rate. However, the actual difference also depends on the loan amount and the repayment period.