There are many ways in which you can pay off your personal loan fast. Find out how in this article.
Personal Loan is used by people for multiple needs, from consolidating credit cards to paying for home improvements. Such a loan can help you fund your planned and unplanned expenses. For most people, paying off a personal loan seems like a daunting challenge. However, if you have the right tools at your disposal and if you follow a systematic process, you can pay off your debt sooner than you expect. So, how to pay off a personal loan fast? Let us find out in this article.
There are several different ways of how to pay off a personal loan fast. These include the following.
Start by reviewing all your debts, from credit card balances and home loans to unpaid medical bills. Make a record of each item, note down the amount owed, the interest rate applied, and the minimum payment requirement. Knowing what you owe will help you choose the right debt payoff strategy depending upon your situation.
Another way how to pay a personal loan off faster is to analyse your income and obligations. Make a budget plan of your monthly income and expenses, and determine how you would contribute to paying off your debt. Don’t let your budget rely entirely on credit cards. There are various online personal finance tools and calculators that can help you make a monthly plan. You can also find different sources to add extra cash to your debt payments and cut back on a few unnecessary, leisurely expenses.
Some banks offer loans at an attractive interest rate compared to others. Transferring the loan to a bank that charges a lower interest rate will also help repay the loan faster.
By adding an extra monthly payment each year, you can pay off loans much faster. For example, if you pay INR 4,800 monthly, sometimes you should additionally pay INR 4,800 or above during the year. If it is difficult for you to come up with extra payment, you can just as easily spread the extra EMI out over the entire year. You can divide your monthly payment by 12 and adding that amount to each monthly payment. Your INR 4,800 payment will become a INR 5200 payment (4,800/12 = 400; 400 + 4,800 = 5,200).
Yet another trick of how to repay a Personal Loan faster is to round up your payment amount if there is room in your budget. The simplest yet effective method to paying off debt faster is rounding up your loan payment. The new payment will become a routine after a few months, and the extra money will get withdrawn gradually from your principal balance. For example: Let’s say you have INR 22500.27 as a monthly payment, and you round it up to an even INR 25,000. That extra you’re paying each month will be deducted from your principal and can save a good amount of money in the long run.
If you are getting any variable pay in the form of incentives and bonuses, you can use that sum to pay off a chunk of your Personal Loan too. Such payments are usually of a proportionate amount and can help you reduce your loan liability consistently.
A prepayment penalty is a fee levied by lenders when borrowers pay off part of the total loan amount before the agreed repayment tenure. In effect, these penalties discourage the borrower from paying off a loan ahead of schedule, which may lead to missing out on interest income to the lender. The best thing to do to avoid a prepayment penalty is to find a lender that doesn’t charge one.
Yet another way to get a waiver on prepayment is to keep paying the EMIs for up to a specific tenure. For instance, most banks charge a prepayment penalty if you choose to repay the Personal Loan within one year. After paying EMIs for one year, you can repay the entire loan without worrying about such a penalty. However, prepayment rules differ from lender to lender, making sure you read the terms and conditions before prepaying your Loan.
Now that you know how to pay a personal loan off faster, you can use the above strategies and be debt-free soon. Paying off your loan within the stipulated tenure helps increase your credit score and increases your eligibility the next time you need a loan. However, do ensure you check the terms associated with prepayment and do not rush to pay off your loan urgently in your bid to pay off your debt at the earliest.
Download the digibank mobile app on your smartphone. Launch the app and click on the "Get Personal Loan" link on the login page
*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.