A personal loan may be a good financial tool when used judiciously. But in order to avoid interest payment, it is crucial that you repay your personal loan in an efficient manner. Let’s have a look at the strategies to enable you to reduce your total debt, and pay off your personal loan more speedily.
Understanding personal loan
A personal loan is a type of unsecured loan that allows a single payment to cover many costs. Personal loans are flexible for purposes such as debt consolidation, home renovations, emergency medical care, or travel since they do not demand collateral like secured loans do.
What is personal loan repayment?
Principal and interest rate are typically repaid in equal monthly instalments (EMIs) while paying back a personal loan. The amount borrowed, tenor, and rate of interest all impact your EMI. There are two advantages of timely repayment-the high credit score and no penalty charges.
Tips for paying off a personal loan faster
1. Prioritise payback: Time the EMI payments on the day of your salary so that you would have paid the instalment before taking care of other bills. This method assures that you will not miss any payments.
2. Consolidate loans: Consolidating your loans will help make your finances easier when managing several loans. It is easier and more economic to pay loans when all those loans are consolidated into one personal loan with a lower interest rate than on the credit card.
3. Transfer the balance of your loan: If your current personal loan has a high rate, then consider transferring the balance to a lender with lower interest rates. Besides reducing your interest costs, this may also help you to extend the loan tenure, which will reduce your EMIs.
4. Prepay partially in advance: Pay partials with whatever surplus you have. Because these payments will directly reduce the principal, you will be able to pay off your loan faster and save more on interest in the long run.
5. Pay more every year: Paying an extra EMI every year is one of the simplest ways to repay debt faster. The cumulative effect of this small step over time can significantly reduce interest costs and shorten the life of your loan.
6. Assess your ability to repay: To find out how much you can afford to pay back your loan each month, look over your income and spending. You can prevent financial distress and stay on course by creating a reasonable budget.
7. Choose shorter tenure and higher EMIs: Shorter loan terms result in higher EMIs, but they also lower your total interest costs. Raising your EMI can help you pay off the loan more quickly and ultimately save money if your budget permits it.
8. Prioritise loans with high interest rates: If you have several loans, pay off the ones with the highest interest rates first, this method reduces the total amount of interest you will pay.
In conclusion, these tips can make personal loan repayment go fast of course. Other than paying less interest on your account, you would have been adding points to your score credit-wise as well as bringing more good things financially towards your name.
But you need to be aware of the associated risks involved in taking out personal loans, as they have generally higher interest rates than other types of loans. To avoid debt burden, you should responsibly use personal loans, and always take advice from a finance advisor.
