In 2025, borrowers are being pulled in three directions at once. Banks advertise lower rates, friends swear by prepaying, and relationship managers pitch balance transfers as a quick win. The problem is that these choices do not deliver the same kind of savings. They work at different stages of the loan and suit different cash-flow realities.
Balance transfer: Useful, but only in the right window
A balance transfer means shifting your outstanding loan to another lender offering a lower interest rate. It tends to make sense when the rate gap is large enough to cover switching costs like processing fees, legal charges and the hassle of fresh documentation. It also works best early in the loan, because in the first few years most of your EMI goes towards interest. A lower rate at this stage reduces interest for a longer period, so the impact compounds.
If you are already deep into the tenure, the numbers often disappoint. The principal has already come down, interest forms a smaller share of the EMI, and the “savings” headline can look better than the actual money left in your account after costs.
Part-prepayment: The biggest saver, if you can do it without stress
Part-prepayment is simple: you pay extra towards principal, outside your regular EMI. This usually cuts the most interest because interest is calculated on principal. Reduce principal early, and you reduce interest for the rest of the tenure.
Where borrowers slip up is consistency. Many people prepay only when they receive a bonus, then do nothing for years. Even one extra EMI a year or a fixed annual lump sum can make a visible difference, but only if you repeat it. The other mistake is prepaying too aggressively and leaving yourself short of cash. Prepayment should come from surplus, after your emergency fund is secure, not from money you may need in a health scare or job disruption.
Tenure reset: The quiet move that helps most salaried borrowers
When rates fall, banks often reduce the EMI slightly and keep the tenure the same. You can ask for the opposite. Keep the EMI unchanged and reduce the tenure. That is the tenure reset, and it is one of the cleanest ways to save interest without hunting for surplus cash or changing lenders.
It is also psychologically easier. Your monthly budget stays stable, but the loan ends sooner. Many lenders now allow this through a request rather than a full rework of the loan.
What should most borrowers do in 2025
If your loan is still in the early years and you have a clearly better rate offer, consider a balance transfer after adding up all costs. If you have surplus cash and discipline, part-prepayment usually wins on pure savings. If cash flow is tight, a tenure reset is the simplest way to benefit from a lower rate environment. For many households, the best outcome comes from combining these: shorten tenure when rates drop, and prepay occasionally when surplus allows.
FAQs
Is it better to reduce EMI or tenure after a rate cut?
Tenure reduction usually saves more interest overall because you finish the loan sooner. EMI reduction improves monthly cash flow but can keep you in the loan longer.
How early should I start part-prepaying?
Early makes the biggest difference, but only after your emergency fund is in place. Prepaying without a buffer can create a different kind of financial risk.
Should I switch banks every time rates drop?
No. Switching works only when the rate gap is meaningful and you are early in the tenure. Otherwise, the effort and costs can outweigh the benefit.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
