There are numerous steps and decision-making processes involved in submitting an application for a personal loan. Two essential actions must be taken in order for your personal loan application to be accepted: choosing among the best banks for personal loan and meeting all eligibility requirements set forth by each lender. In addition, it is common and expected that borrowers will exhale in relief when the loan is approved and then start making monthly installment payments.
Above all, though, in order to safeguard your future financial security, you must repay the interest on your personal loans with extreme caution. The following five sage advice items will help you manage your personal loan’s interest repayment:
Make sure you never miss your EMIs
While you are managing your personal loan, make it a habit to check frequently to make sure that your EMIs are being paid back on time. Because it will show favourably on your credit report, paying your credit card bills and EMIs on time and sensibly will help you maintain a good credit score. If a borrower has a credit score of 750 or higher, they might be eligible for better terms and Lowest personal loan interest rates. It might also increase the number of possible borrowers in their pool and increase the chance that the loan will be approved. However, any anomalies in loan repayment could lower your credit score, making it less likely that you’ll be approved for a loan and be able to borrow money in the future.
Make prepone payment as soon as you have extra money
Additionally, borrowers ought to remember that they ought to pay off their outstanding debts as soon as they have extra cash. If done early in the loan term, this can result in significant interest cost savings. Therefore, whenever you have extra money, try to prepay your loan or loans. If you are repaying a loan more than once, you should always pay back the loan with the highest interest rate first.
But before you send in a payment, remember to account for any applicable prepayment fees. Make sure you comprehend the terms of repayment and any associated costs before taking out a personal loan. Even though the RBI prohibits them on loans with variable interest rates, some among best banks for personal loan may charge prepayment penalties on loans with fixed interest rates. Therefore, only decide to pay off debt early if the total interest savings greatly exceed any associated costs.
In order to avoid loan foreclosure, borrowers of personal loans should also abstain from using emergency funds or particular investments linked to significant life objectives. This is because it’s possible that you’ll eventually need to take out loans that are much more expensive in order to meet significant financial objectives or pay for unforeseen expenses. Furthermore, before determining which asset classes from your current investments—which aren’t allocated to any particular, high-priority goal—should be redeemed to make the prepayment, redeem the excess money in fixed income instruments like debt funds and fixed deposits. The returns offered by these fixed income instruments are typically lower than those of most credit options.
Go for balance transfer to lender with Lowest personal loan interest rates if feasible
If the best banks for personal loan satisfies the lender’s requirements, borrowers with personal loans may utilise the balance transfer option to transfer their balances to other lenders at a reduced interest rate. As a result, their total borrowing costs and EMI load are decreased. Therefore, borrowers who have a sizable portion of their loan term left should periodically compare their current loan’s interest rate to that of other lenders. To ensure you get the best possible deal, make sure you compare the rates provided by the lender of your choice with those of other banks and non-bank financial institutions (NBFCs).
You should request Lowest personal loan interest rates possible from your current lender if they are offering one. When it comes time to pay off the interest on your current personal loan, this could save you a substantial sum of money. Choose Balance Transfer to a New Lender if your present lender is unwilling to offer you a better interest rate. However, always remember to factor in any applicable prepayment penalties from the current lender, along with any processing fees or other costs that the new lender may have, before transferring your balance.If the interest savings on your personal loan exceed all other expenses, only proceed with the remaining balance.
Don’t forget to frequently review your credit report and score
All of the loans and credit card transactions you have ever reported to lenders and credit card issuers are summarised in your credit report. Credit bureaus then use all of the information you have provided to determine your credit score. Remember that any mistake committed by a lender, credit bureau, or even by fraudulent activity can have a negative effect on a credit score. Regularly obtaining your credit report is the only way to reduce this risk—possibly the best one. This should ideally be done every two to three months.
Remember that each credit bureau will only provide you with a free report once a year, so schedule your requests for every three months. Remember that the best banks for personal loan will still obtain your credit report from the bureau in order to assess your eligibility for a personal loan. This is done to verify your creditworthiness and repayment history, as well as to evaluate the credit risk involved in giving you credit.
Have your EMI amount included in contingency fund
It is commonly acknowledged that the main goal of building up a sizable emergency fund is to be ready for unanticipated expenses or income disruptions, such as a death in the family, a serious illness, a disability, or other unfortunate events. An adequate emergency fund should ideally be big enough to cover the inevitable monthly expenses (rent, insurance premiums, EMIs, etc.) and last for at least six months. Therefore, especially for the more expensive loans that offer this more expensive credit option, borrowers who are repaying their current loans must set aside the equal monthly installments (EMIs) in an emergency fund for a minimum of six months. By allowing borrowers to continue making their EMI payments even in difficult financial times, this shields them from late fees, increased interest rates, and negative effects on their credit score from irregular loan repayment.