Personal Loans come in handy for both planned and unplanned expenses. Many borrowers prefer these funding options due to their freedom of usage, unsecured nature, and flexible repayment terms. Moreover, the interest rates are competitive, eligibility for a Personal Loan is straightforward, and documentation requirements are minimal to make them easily accessible. However, treating them seriously and repaying them on time is critical to saving your credit once availed. Prompt repayment improves your financial condition and credit history without stressing your finances.
Let’s examine a few strategies to manage your loan repayment and pay it off faster.
Budgeting is the most crucial step in developing an effective loan repayment strategy. Closely examine your spending habits to understand your monthly balance after adjusting loan repayment. Consider using a budgeting app to track your monthly expenses and keep them in check. These apps also have features like goals and saving pots to help you save money for the EMI repayment each month. Creating a budget will keep you on top of your finances while using the best Personal Loan.
2. E-Mandate Activation for Direct Debit
Activating the e-mandate from your bank account is the best way to ensure timely EMI repayments. When you activate this facility, your bank will automatically debit the EMI amount from your account on the due date each month and credit it to the lending institution’s account. It is an excellent way to avoid the risk of missing an EMI that can negatively affect your credit rating.
3. Bank Account Monitoring
Check your bank account and ensure it has sufficient funds to repay your loan EMIs. Many banks have mobile apps that allow you to check your account balance on the go. You may also set up alerts to receive a notification whenever your account balance goes below a specified amount.
Keeping track of your account will allow you to repay your EMIs on time while avoiding late payment charges. Moreover, you can stay organised and track your repayment plan with regular account monitoring. Being mindful of your bank account will help you pay EMIs on time and control debt. Better repayment decisions will also increase your credit score over time.
4. Debt Consolidation
If you currently handle multiple debts, combine them into one debt consolidation loan to make your repayments manageable. In the debt consolidation strategy, you take a new loan to pay off all your existing loans. So, instead of making monthly payments to each lending institution, you must only take care of a single loan. However, it is a favourable strategy only if the new loan’s interest rate is lower than the combined rate of all your existing debt. Also, check the prepayment charges of your current loans and weigh the pros and cons before making the final choice.
5. Personal Loan Refinancing
If you borrowed a loan in the past for a financial emergency, you may find better loan deals now. You must have improved your credit score with regular repayments, or your finances must have improved to get a better plan. Even after borrowing a loan, keep an eye on the available loan offers with lower interest rates and better terms and conditions.
If you fulfil their eligibility for a Personal Loan criteria, prepay the current loan and refinance it with a new lending institution with a lower interest rate and better terms. When handling a Personal Loan, there is no harm in comparing the available options to grab a better deal. Doing that will save interest expenses and reduce the overall loan cost.
6. Careful Prepayment
When you get a bonus, you may feel tempted to pay more than your EMI amount to clear the debt sooner. However, before making a prepayment, check if the lending institution charges prepayment fees to repay the loan before the term ends. Such hidden charges are usually present in the loan agreement’s fine print. Before prepaying a loan, consider its pros and cons to use your finances better. Otherwise, you can invest that money somewhere else to get better returns.
7. Careful Term Selection
Using a Personal Loan EMI calculator to select your repayment term carefully will help you plan your EMI repayments and finances more effectively. The tool lets you determine the monthly EMI amount you must pay based on variables like your loan amount, interest rate, and repayment tenure. Making an informed decision regarding your term selection will allow you to repay the loan promptly and improve your credit score.
A Personal Loan EMI calculator gives a clear idea of the loan’s impact on your monthly finances, helping you decide if you can afford the EMIs. If you are already struggling with finances, opt for a longer repayment term to reduce the EMI amount and pay them efficiently. However, if you can afford a larger monthly amount, opt for a shorter tenure to save interest costs. Another benefit is that it allows you to compare various loan schemes available in the market. You can calculate Personal Loan eligibility by entering a few details and selecting a loan plan according to your monthly budget.
8. Debt Snowball Method
If you are handling multiple loans at a time, focus on repaying the smallest loans first while paying minimum dues on other loans. Once you pay off the smallest loans, you free up your money to handle the next smallest debts. This kind of snowball effect accelerates debt repayment efficiently.
9. Debt Avalanche Method
Another strategy is the Debt Avalanche Method, where you first focus on the biggest loans instead of the smallest ones. With this strategy, you can save money on high-interest payments, which you can use to pay off smaller loans later.
These strategies allow you to handle your loan repayment and improve your credit history easily. Check your eligibility for a Personal Loan and strategise properly to make your repayment a stress-free endeavour. Moreover, use prepayment and EMI calculators to review your repayment plan and make better financial decisions for a successful and smooth experience.