When applying for a personal loan, you do not have to submit collateral or guarantors to get the loan approved. The process is also subjected to minimum documentation and does not require you to depend on credit card payments. You can easily pay-back instalments, and get rid of uneasiness from interest added on credit card payments. It is important to select the right personal loan to avoid any trouble during repayment.
We list out four golden rules for personal loan repayment, which you must consider before choosing the loan scheme.
1. Choose a Suitable EMI Scheme
You must select an EMI pattern that does not affect your other expenses, lifestyle, and daily routine. Choose EMIs, which you can afford to give every month. It is advisable not to constitute more than 40 per cent of monthly income in paying towards the loan, so manage your finances accordingly, but it is your personal choice as to the income amount you direct towards debt payment.
2. Look for Lower Interest Rate
While a lot of factors are involved in determining the interest rate on a personal loan, if you are a good candidate, you can avoid paying very high interest by selecting the fastest repayment time. To lessen the total interest amount you have to pay, you may have to go ahead with highest possible EMI to be repaid at intervals.
3. Avoid Outstanding EMIs
Keep away from outstanding EMIs so that your credit score is unaffected. In case you think there will be some problem paying the EMI regularly, speak with the bank official or lender institute you choose for the personal loan. Find out if the repayment tenure can be extended or not.
4. Pay First for your Debt
If you have additional money, it is better not to delay the loan repayment. You can choose a bank that offers personal loans with minimal or no prepayment charges. In case the prepayment asks for a giant fee, then it is best to save that money to pay off debt, as per the loan agreement clauses.
Personal Loan Prepayment
Prepaying a personal loan could be a fine idea if you have some additional funds at hand. Most of the banks have a lock-in period, after which no prepayment charges are levied. If you want to prepay at the earliest without regarding the locking period, you may invite some prepayment fee.
Thus, you must carefully study prepayment implications in concern with investment opportunities, interest saved, penalties levied, and other factors.
- You should analyze the short and long term consequences of prepaying the loan, as sometimes you may have more than one loan to handle.
- When you have the chance to prepay your loans, you need to prioritize the one that is best completed at the moment.
- If the extra cash you have earns lesser returns compared to the interest you need to pay for the personal loan, then you must pay off the loan first.