The availability of personal loans online has made these financing strategies widely popular. People, especially the young generation, rely on these financing avenues to fulfil many lifestyle aspirations. Be it buying a high-end phone or a gaming laptop, going for short trips or managing any unforeseen expenses, they turn to a personal loan for all their needs.
However, before availing a personal loan, you must consider your repayment strategy. Consistent and regular repayments of your loan are very important for building your credit profile. Also, quick repayment of your loan will increase your loan eligibility, reduce your monthly obligations and allows better management of your finances.
Read on to discover the strategies to repay your personal loan
Strategies to Repay Your Personal Loan
Your credit score and eligibility for future loans can benefit from repaying your personal loan as quickly as possible. It also improves your financial position. Let’s explore how to repay your personal loan.
- Evaluate the debt you owe.
It is imperative that you are aware of your exact debt before making any plans to pay it off quickly. Evaluate all of your recent payments and the outstanding amount. Note all your other monthly obligations, such as your home loan EMI, insurance premiums, household expenses, and credit card balances.
You can develop a good repayment strategy only if you know your financial situation well. Understanding how much you owe can help you plan your repayment strategy more effectively.
- Find ways to save money
Prioritize paying off your personal loan early by reviewing your spending and finding ways to save money. Cut down any memberships or monthly subscriptions, like streaming services, news publications, or gyms. Spend less on discretionary items. Reduce expenses on travel, dining and partying.
You can use the saved money towards repayment of your personal loan. This will help reduce the principal outstanding towards your loan. Always try to pay an amount more than your EMI.
- Set up a direct debit
Setting up a direct debit is a straightforward way to guarantee that your loan repayments are made on time. Your lender will deduct the EMI amount automatically each month. This reduces the risk of missed payments.
Just make sure to maintain enough balance in your account so that the standing instructions do not fail. Also, when you use direct debit to make automatic payments, your lender may offer you a discount.
- Loan Transfer
The cost of a loan is significantly influenced by the interest rate charged. In case, you have availed a loan in the past at a higher interest rate, you have the option to shift to a low-interest loan.
You can move your loan to a different lender if you eventually find one that provides a loan at a lower interest rate and on better repayment terms. However, make sure to negotiate with your current lender for a reduction in your interest rate.
- Prepayments with Financial Advantages
Use any additional funds to make a prepayment on a loan, whether from a raise in salary, a sudden bonus, or profits from investments. Prepayments shorten the loan’s term; the lower the term of an outstanding loan, the lower the interest rate it attracts.
There might be a prepayment charge for such payments. But most lenders levy a nominal charge only. Make sure to read the terms and conditions of the lender before availing the loan. You must compare the prepayment penalty for a loan with the interest you will save by paying it off early. Use a personal loan calculator with the personal loan online app to calculate the potential interest savings.
- Debt Consolidation
Managing the repayment of many debts at once can be difficult. To avoid falling behind, combine your debt into a single sum. Consolidate all your debts, such as personal loans, auto loans, and past-due credit card bills, into a single loan, and make monthly payments at a fixed interest rate. With a debt consolidation loan, you have a better chance of getting a lower interest rate.
Debt consolidation is an effective way of managing your ongoing debts, especially if you are serving multiple EMIs. In addition to this, debt consolidation allows one single EMI payment in place of multiple EMI payments.
A personal loan can be a practical method to pay for unforeseen costs or finance a significant purchase. A personal loan’s proceeds can be applied for a variety of purposes. It’s no longer difficult to submit an application for a personal loan.
You can apply for a personal loan online with minimal documentation, faster processing and disbursement of the loan amount into your account. However, while all this makes getting a loan faster, you must also have a strategy for paying back the loan on time. The timely loan repayment will improve your credit score and make you eligible for future loans.