In the unsure times with COVID still on the horizon, you would be wondering how on earth you would be able to repay the loan on time. Here comes the Good News! You can actually do it.
So basically when you repay the loan on time, it means that you
- Would be able to maintain a superb credit score
- Would be able to obtain a loan whenever you need it
- Would be able to enjoy more liquidity than ever
- Would be able to have more purchasing power & so on.
Interested to know more? Please read on.
- 1) Opt for Loan restructuring having higher EMIs
You may feel that lower EMIs with higher tenure may be your best bet for better liquidity management. However, when you opt for higher EMIs to repay the loan, it translates into lower tenure, thereby meaning that you can easily repay the loan on or before time with much less interest out go.
You need to evaluate and analyze which aspect of loan repayment is more beneficial
- Either you can achieve liquidity by opting for lower EMIs
- Or you can choose higher EMIs and in turn, save on interest.
If you can manage the cash availability, it is always better to opt for higher installments, which would result in lowering the loan repayment tenure. In this way, you can easily repay with lower interest cost.
- 2) Strategic liquid funds management
“You should save more than you can spend “ goes the saying. But are you really gaining any benefit by saving? Confused?
There are several financial instruments to help you save and earn income by way of interest or dividend or wealth building. When you are investing a particular sum of money, you expect some gain. But what if you get far lesser than what you are spending? Then does it make sense to invest just to save a part of income that would not even bear the inflation burden in the long run?
So comes an unpopular opinion, that you should divert your funds to reduce the liability rather than spending higher interest and earning a meager interest rate.
Currently, traditional investments like Fixed Deposits are earning far lesser than 7%. If the rate of interest on your loan is anywhere more than 7% effectively, it makes sense to repay the loan with this money.
There Are other conditions like the availability of disposable income or restrictions for loan prepayment etc. However, if all goes well, your money will be strategically allocated towards reducing the liability of interest and in such a case, you will be able to repay the loan on time.
- 3) Gain benefit of Prepayment of loan either partially / substantially
Loan prepayment is an excellent example of putting money to the best alternative use rather than earning a meager or negligible income by investing it elsewhere.
Most of the banks have slashed or waived the prepayment charges where there is full or partial repayment.
Traditionally we are taught to save rather than spend. However, it is wise to reduce the liability on hand first. If you repay the loan faster, you would get pure income on your hand after the closure of the loan. This happens because whatever you will spend will be lesser than what you could have spent on remaining tenure because higher tenure implicates higher interest on the loan.
So if you get a smart sum of lump sum money on hand, then make sure to repay the loan as much as you could. This trick would help you repay the loan on time.
- 4) Choose a Lender with an attractive interest rate
We are at benefit with the open economy because there are many players in the financial markets. Many websites also help in comparing the interest rates of various financial institutions. This means that we can always shift to the next best alternative.
Various financial institutions try to attract customers with attractive rates of interest or floating rate of interest etc. Even after the loan is being serviced, you can opt for any other financial institution with better interest rates.
This would enable you to repay the loan on time.
- 5) Learn to make use of Loan calculators for a better planning
Most of the banks publish the loan EMI calculators, interest rate calculators, etc. for the benefit of the general public. In this way, you would not require any human help or intervention to evaluate the loan repayment schedule.
If you have a handsome amount of money with you, you can use such calculators to understand the impact of prepayment of the partial or substantial loan. You can also evaluate and analyze the change in the rate of interest for the restructuring of the loan. These calculators will help you in decision making and in turn, will benefit you to repay the loan on time.
- 6) Try not deferring the loan repayment to a later point in time
Banks do have mechanisms in place to levy a charge for deferment or delaying or non-payment of loan installments on time. When your cash management is not in place or if you get out of a job then most of the time, you would consider the loan repayment as not a priority. However, if you delay repaying the loan, then the banks may charge you heavily for such deferment.
If you repay the loan on time you would save much on these delay costs.
- 7) Try to navigate out of higher interest loans first
Most people nowadays have two or more loans i.e. a home loan, a personal loan or credit card, etc. Servicing all at a time however recommended, would turn to fatal exercise in case of the cash crunch.
As an example suppose you have a housing loan at an interest rate of 9% and a credit card having 15% interest rate. Unfortunately, you get laid off the job, then you have limited cash to settle off all debts at a time.
In such a case, you should opt to settle the credit card liability first since it will dig a deeper hole if left unserviced. A home loan allows you to avail of tax benefits also, so you could go easy on it sometime with the existing rate of interest till you get income. Once you are earning again, you may opt for a higher EMI on a home loan too to repay the loan.
This fund planning will help you repay the loans on time.
