With digital advancement, getting a loan has never been easier, but it is not free money - the borrower has the responsibility to return the money on time, especially with the high interest rates.
With the cost of living constantly increasing, personal loans have begun to play an important role in our lives today. Unlike days when one had to stand in bank queues for days, nowadays digital loans are disbursed almost instantaneously. Experts say though fast access to money is a great convenience, it is important to pay these loans back in time.
Atul Monga, CEO and Co-founder, BASIC Home Loan, says, “While it feels good to get your home loan approved quite easily, it is just as important to pay it back on time. This helps keep the borrower’s financial standing in good shape and also saves time and money in the long run.”
With digital advancement, getting a loan has never been easier, but it is not free money – the borrower has the responsibility to return the money on time, especially with the high interest rates. Hence, if you have multiple loans at a point, start with repaying the one with the highest interest rate.
Gaurav Jalan, CEO and founder, mPokket, says, “It is important to keep in mind that the interest rate of a personal loan is much higher than the interest rate of a home loan or a vehicle loan. Prioritize paying off loans with a higher interest rate first.”
Hence, if one has enough funds, he/she should consider foreclosing on the loan. This will turn out to be a much cheaper option as compared to paying the full interest over the originally stipulated time period.
Here are a few tips to pay the home loan on time and make it faster;
Make Repayment a priority – Paying the EMI’s on time helps boost the credit score of the borrower. Scheduling the EMIS’s close to the salary date and ensuring sufficient funds will help pay EMI’s on time. Missing an EMI will lead to penalties from the lender and also harm the borrower’s credit score.
Invest in various schemes – “One can start making different investments to ensure lump sum payment and down payment of the loan. If the down payment is large, then the loan amount will be less, which would help further lower the interest rates,” says Monga. Lower EMI becomes easier on the pockets to pay it back on time.
Negotiate for better rates – There are a lot of rates in the market. Experts say one needs to negotiate the service terms with the lender, to get the best possible interest rates. Lower interest rates will ease the burden on the borrower and in turn help in better repayment.
Choose a short tenure – An important factor to be considered while taking a home loan is tenure. The shorter the tenure, the disposal of the loan will also be quicker. Monga adds, “Even though this will lead the borrower to shell out a larger amount as EMI every month, the interest rates will be less. The longer the tenure, the higher the interest rates.”
Even with such measures, keeping track of multiple EMIs to be paid can become difficult. Experts say debt consolidation is another alternative for those with many loans.
Jalan says, “Debt consolidation allows the borrower to consolidate multiple loans into a single loan. This will allow the borrower to make a single payment every month, with a single associated interest rate.” He further adds, “Lenders often have attractive offers for consolidating existing loans. This may help the borrower to reduce his/her overall interest burden, thus making it easier to manage their finances.”
Just like debt consolidation, another alternative that one can avail of is a personal loan balance transfer. It is essentially a process where the borrower can transfer his/her entire outstanding personal loan from one bank to another, and the new bank extends a lower interest rate on the outstanding loan amount. However, note that to avail of a personal loan balance transfer one needs to have a good credit score.
Jalan of mPokket says “A good credit score is just one of the many benefits that one would get out of repaying one’s loans on time. It will have long-lasting benefits for the borrower in the long run.”