7 Tips to Save on Interest on Your Loan Repayments

1. Register for Auto-pay:

Not paying your EMIs or dues on time leads to debt accumulation and can attract late payment charges. The accumulated interest and late payment charges can create a huge financial burden on the borrower. Make sure that you pay all the dues on time to avoid building up the interest component and penalties. Also, not paying your dues on time can negatively impact your credit score. To ensure you pay all your EMIs on time, it is advisable to register for a debit mandate. A debit mandate is a convenient option of repayment that automatically pays your EMI before the due date from the registered bank account.

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2. Reduce Loan Tenure:

Many borrowers think that they can never modify the loan terms. But if you have a strong credit history, you can request your lender to make changes to the loan terms. Shorter loan tenure and paying higher EMIs ensure you pay off your debt sooner. Apart from that, if the loan tenure is shorter, you end up paying a lower amount on the interest. Hence, if your income has increased from the time you availed of a loan, it makes sense to reduce the loan tenure and pay higher EMIs. However, you should remember that your EMI burden increases by choosing the shorter loan tenure. Suppose if you cannot make the timely repayments of your EMIs due to any uncertainty, you will be charged for the delayed repayments, and it will reflect in your credit report for a long time. Therefore, you should choose and change the loan tenure wisely.

3. Make Part-payments:

Through part-paying, you can drastically reduce your home loan. Hence, instead of splurging on luxuries, it is advisable to do home loan part-payments whenever you have surplus funds, like a bonus, gift, or any other unexpected income. However, you should first check the pre-payment charges with your lender, as some lenders charge after a certain amount or number of part-payments, and some do not. If it is a home loan, the lenders do not charge for a certain amount of part-payment on home loans with a floating interest rate.

4. Consider Loan Transfer:

We do thorough research when choosing the right lender by comparing several lenders in terms of interest rates, other charges, eligible amounts, terms and conditions, etc. However, due to increased competition, lenders keep offering attractive interest rates and other additional charges. If a new lender is offering you a good deal for a loan transfer, it is advisable to do a cost-benefit analysis and calculate the expected saving by considering the current and new interest rates, unpaid loan amount, loan transfer charges, pre-payment charges, etc. Instead of continuing the high-cost loan, it makes sense to opt for a loan transfer if you are making considerable savings. Since home loans are big loans, a home loan balance transfer can help you save a substantial amount on interest.

5. Opt for Debt Consolidation:

Debt Consolidation is an act of taking out a new loan to pay multiple debts with usually a lower rate of interest. It helps you to manage your debt and lower your financial burden. Debt Consolidation Loan is refinancing your existing debt obligations. So it allows you to take a new loan to combine all your existing loans for better terms, such as a lower rate of interest, longer loan tenure, etc. Consolidating all your loans can decrease your interest costs which will help you to pay the loan quickly. It makes sense to opt for a secured debt consolidation loan as they have comparatively lower interest rates than unsecured debt consolidation loans.

6. Develop Banking Relations:

Some leading banks offer special interest rates on car loans, personal loans, etc., to their old and/or privileged customers. But if you do not have a savings bank account/current account or any banking relationship with them, you cannot take advantage of such offers. Hence, it is recommended to open a bank account with a leading bank that offers such benefits. However, make sure you do not open too many savings accounts as it can make it difficult to manage them.

7. Claim Interest Deductions:

Certain loans like home loans and education loans are eligible for tax deductions on the interest amount. You can save a considerable amount through tax rebates. Hence, make sure you include deductions on your home loan and education loan while filing your income tax returns.

To conclude:

As the competition has increased in the market, you get attractive interest rate offers from many lenders even if you have an average credit score. However, it is necessary to compare different lenders online in terms of interest rate, processing fees, pre-payment and part-payment charges, late payment fees, and other loan terms and choose the one that offers the highest value. It is important to keep doing the research from time to time, even after you have availed the loan, to make sure you are well informed and take advantage of the better deal that comes.

Warm Regards,
Ketki Jadhav
Content Writer