09 January, 2025 | 18:35 IST
A personal loan is an unsecured loan offered by almost all banks and non-banking financial companies to borrowers to meet a wide range of needs. The borrowings in the personal loan segment have been growing over the years, especially after the advent of a complete digital process for loan approvals. The easy availability and hassle-free approval process makes personal loans a go-to option for many individuals looking for quick financial assistance. Having said that, the key to making the most of this depends on a swift personal loan repayment. Paying off your loan faster helps you save on interest, reducing your overall debt burden and allowing you to manage your finances more effectively.
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Before planning to pay off your personal loan faster, it’s essential to thoroughly understand your personal loan repayment schedule. It outlines how much you need to pay in instalments (EMIs) each month and for how long. Familiarising yourself with this structure is critical to planning. The benefit of having a clear personal loan repayment schedule is that it gives you a roadmap to know exactly how much you owe and when. Most lenders provide flexible repayment options that suit different financial situations.
Make an extra payment
One effective way to pay off your personal loan faster is by making an additional payment each year. By contributing even one extra EMI annually, you can significantly reduce both the principal and interest, bringing you closer to clearing your loan ahead of schedule. If paying an entire extra EMI at once feels burdensome, consider breaking it into smaller, manageable portions. However, do check if the lender provides this option and if yes, what is the permissible frequency, amount and penalty charges if applicable.
Choose a shorter loan tenure
Choosing a shorter tenure for your personal loan repayment is another effective strategy. Although shorter tenures come with higher EMIs, they can significantly reduce the total interest you will end up paying over the life of the loan. For instance, if you choose a loan tenure of 3 years instead of 5 years, the interest payable will be lower, even if your monthly EMIs are higher.
Consolidate your debt
If you have multiple personal loans, consolidating them into one can simplify the loan repayment and potentially lower your overall interest outflow. A debt consolidation loan combines all your outstanding loans into one, typically at a lower interest rate, and allows you to make a single payment rather than managing multiple loans. Consolidating your debt can reduce your loan repayment burden and accelerate the process of becoming debt-free.
Refinance your loan
Refinancing involves borrowing a new loan at a lower interest rate to pay off an existing personal loan. If interest rates have dropped since you initially took your personal loan, refinancing can save you a significant amount in interest payments and shorten the repayment period, making it among the effective loan repayment options. By choosing a lender with a lower interest rate, you can reduce your EMIs and repay your loan faster. Just make sure to factor in any processing fees or prepayment penalties before deciding to refinance.
ALSO READ: How a Personal Loan Works: Eligibility, Interest Rate, Loan Amount and More
Avoid missing payments
Missing a personal loan repayment not only affects your credit score but also adds penalties and additional interest to your loan, prolonging the loan repayment period. To ensure smooth and timely loan repayment, set up automatic EMI payments. By making all your payments on time, you can maintain a good credit profile and avoid late payment charges. This allows you to repay your loan within the agreed timeline and also helps in improving your credit worthiness.
Track your progress and adjust your plan
As you work on faster personal loan repayment, you also need to track your progress. Regularly review your loan statement and monitor how much of your payment goes towards the principal versus interest. If your financial situation changes, consider adjusting your personal loan repayment schedule. You might decide to make extra payments or increase your EMI.
Repaying a personal loan faster requires planning, discipline and effective use of available options. From paying more than your EMI to refinancing and automating payments, there are several ways to speed up the process. By using these strategies, you can effectively manage and repay your personal loan faster, helping you save on interest and secure your financial future.
On Moneycontrol, you can find the best personal loan offers from top lenders. Get instant loan up to Rs. 15 Lakhs with zero paperwork and quick disbursal.
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