5 ways to cut EMI cost
The cost of living each year has increased tremendously. What we might have got for Rs.5 two years ago might be costing Rs.20 now. It has become necessary to know the art of managing your finances to meet your monthly or yearly financial goals. All this we need to manage with other important expenses or investments you might have done to safeguard your future.
With the prices of commodities very high taking loans be it personal loans, home loans, auto loans etc. has become second nature to this generation. The EMI due to these loans are one of the most substantial expenses each month that a person must dish out.
With loans and EMI playing such a big part in a person’s life and budget we decided to give tips that will help reduce the cost of your EMI for any loan.
1. Check your credit score: Before you even think of going for a loan it is best to check your credit score and credit report. If you have a good credit score (750 and above) then you have paid all your dues on time and are an ideal customer for the bank. This gives you the upper hand in any negotiations to get a better deal on your loan.
On the other hand, checking your credit score helps to rectify any negative points on your report as a bad credit score is grounds for loan rejection.
2. Negotiate with the bank: If you are in good standing with your bank who knows about all your salary details and expenses then you can negotiate good terms for your loan.
Also, the same can be applied for existing lenders or previous lenders where you have paid your dues on time show casing that you are very disciplined when it comes to financial matters, you can negotiate a better deal with them.
3. Opt for a longer tenure: If you have a long loan period, your EMI reduces proportionately as your principal and interest is divided over a greater number of months. However, while the actual monthly outflow will be smaller, you will be paying out EMIs for a longer period and paying interest for a longer period. So, while your monthly burden might be smaller, you might end up paying more over the entire duration of the loan.
4. Making an early prepayment: One way to significantly reduce your EMI for the majority of your tenure is to make an early pre-payment. If you are able to afford the option of prepaying part of your loan, it is better to do it in the early months/years of the tenure so that your principal decreases, thereby saving you interest on later payments.
5. Transfer you loan to another lender: If you find a lender who offers better terms and conditions on your loan, it might be a good option to change your lender. However, it is important to calculate the costs involved in prepaying your loan with your existing lender and to ensure that the costs are not greater than the savings you will gain with your new lender.