Worried about rising EMIs? Reduce your loan burden with these 4 smart ways..

On Wednesday, October 7, the RBI raised the repo rate by 0.25% (25 bps), bringing it to 5.5%. Following this hike, home loans, car loans, and personal loans will become more expensive. If you are looking to ease the financial burden this creates, this article is for you. Here, we explain how you can manage the burden of debt.

How can EMIs be reduced?
An RBI repo rate hike inevitably leads to higher EMIs, increasing the financial strain on your pocket. However, you can reduce your EMI using the following four methods:

1. Increase the EMI amount slightly

When the repo rate rises, banks often extend the loan tenure by 1 to 2 years while keeping the monthly EMI amount unchanged. This approach proves to be the most expensive option for the borrower. Instead of extending the tenure, you could choose to slightly increase your monthly EMI amount. This ensures your loan is paid off on schedule and saves you from paying lakhs in interest.

2. Opt for pre-payment

If you have a festive bonus, PPF funds, or other extra savings, you can use them to repay the loan principal. Making an extra pre-payment of just 5% of your total loan balance annually completely neutralizes the impact of the 0.25% interest rate hike. This can reduce the repayment period of a 20-year loan to just 13–14 years, resulting in significant interest savings.

3. Use a home loan overdraft facility

If you wish to lower your interest costs while keeping your emergency fund or cash reserves intact, you can convert your existing home loan into an overdraft account. This facility involves opening a current or savings account linked to the loan, where you can park surplus funds (such as ₹5–8 lakh) for a few months. The bank deducts this deposited amount from the total outstanding loan and charges interest only on the remaining balance. The best part is that you can withdraw this money whenever the need arises.

4. Loan Transfer and Spread Negotiation

If your CIBIL score has improved to over 780 or 800 points and your income has increased since taking the loan, you have a great opportunity to negotiate. Ask your bank to reduce the 'spread' (the margin over the benchmark interest rate). If the bank refuses, you can transfer your loan to another bank offering a lower interest rate. Saving even 0.25% to 0.50% on a large loan amount can result in savings worth lakhs of rupees.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.