Going for a loan is not an easy task. It requires research, weighing of options and asking questions. One of these questions is about repayment of the loan you are about to take up. Repayment of a loan is a big question because it is a medium to long-term liability on you. Your loan will not get over with just a handful of payments. Hence, a lot of research goes into which bank to go to for a loan and how to repay it. Today, we bring you a compilation of loan repayment options you can use. We weigh their pros and cons to tell you which one serves you well and in what capacity.
Loan Repayment Options
Option 1 – Bank’s Suggestion
This is the option you get when you seek a loan. The bank tells you the interest rate, lets you choose the tenure and hands you the breakup. This is the easiest method to repay the loan. After all, all you have to do is walk a straight line. In coming few years, your loan will be over and till then, you have to make timely payments. However, it is the best option for those in government jobs. Few people leave their government jobs and hence, their income flows never stops. This is exactly what is needed for this type of repayment options.
Option 2 – Increasing EMI amount
The second option among the loan repayment options you can opt for is this. Instead of paying a fixed EMI for the repayment tenure, you can increase your EMI amount when you wish to. What this does is reduce your loan amount by a bit while taking care of the interest. Reducing loan amount means less repayment tenure. You can call it part-prepayment. However, there is a caveat in this case. You will have to keep eye out on the prepayment clause in the loan. Certain banks limit the prepayment amount to a limit. Also, do look out for prepayment charges that may be levied. Due to these charges, you may have to pay more than what you planned for. Keeping the caveats in mind, this option is best suited for those receiving regular bonuses at their workplaces.
Option 3 – Part/Full Prepayment
This is the most alluring option here. All you have to do is save money while repaying the loan. Then, you make a big prepayment towards your loan and reduce the principal substantially. This way, your loan’s interest amount also comes down. However, the problem is the bank’s prepayment clause. Say, you have a loan of Rs 12,00,000 for a tenure of 10 years. Keeping calculations simple by not including interest, your EMIs come out to be Rs 10,000. You decide to make a prepayment of Rs 2,00,000 for the next two years. Your loan amount comes down to Rs 6,00,000. This will not just affect your loan amount but its tenure too.
The real trouble is this. You will have to look for a bank that gives loan with no ceiling on prepayment. Many banks limit prepayment to a certain amount because it hurts their income through interest. If there is a ceiling on your prepayments, you will not be able to clear your loan as fast as you may wish to. Also, keep an eye out on prepayment charges. Lastly, since banks provide loan on rate of interest that can change in future, do factor that in your decision.
Option 4 – Waiting It Out
The last option in our list of loan repayment options is waiting it out. The financial market is an ever-changing one, just like any other market. So, chances of interest rates coming down always exist. If the interest rates fall a year later, it will result in less financial burden on you. In essence, not just your loan amount but tenure will reduce too. This will happen without you even having to look for additional finances. But it is a double-edged sword. If the interest rates increase in future, you will have to pay higher EMIs.
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