Top 8 Tips for Faster Debt Repayment

Today, with increased income capability and job stability, getting a loan has become easier than ever. Whether it is purchasing a house or a car, a two-wheeler or a high-end item, a medical emergency or some other urgency, easy financing is available for all kinds of needs and aspirations. However, availing a loan is a long time commitment that strains your monthly budget. As such, paying off your debt as soon as possible has many benefits. Firstly, it reduces your overall interest pay out on the loan. Secondly, being debt free helps you plan your investments and savings in a better way. Thirdly, you become eligible for another loan in case of a future emergency. Here are eight golden tips that will help you clear your loan faster.
 

How to Pay the Loan Faster? 

1. Increase the down payment

   This concept only applies to product-specific secured loans and not to unsecured loans such as personal loans. For example, if you finance a two-wheeler or a car, the lender will require a minimum down payment. The minimum percentage of your down payment would depend on your credit history.
    
   However, if your income allows, increase the down payment amount. It benefits you in two ways. First, the lender may offer funds at a lower interest rate. Second, reducing the principal amount of your loan will lower your EMI (even if you choose a shorter tenure).
    

2. Explore lenders

   Always do your homework before applying for any kind of loan. See what interest rate is prevailing in the market, learn about different lenders' qualifying criteria, and make a list of the required documents. You must be wondering how all of this aids with faster loan repayment. The answer is to apply with a lender whose requirements perfectly match your profile, allowing you to secure funds at a lower interest rate. The lower rate translates to smaller EMIs and a lesser burden on your wallet while allowing you to choose a shorter tenure and faster loan closure.
    

3. Consider associated charges

   When you borrow money from a lender, you pay not just the interest but various other fees as well. Few of these are required, while others arise only in certain circumstances. Mandatory ones include processing fees, property valuation charges (in case of a mortgage), loan application fee etc. Situation-based charges include rescheduling, foreclosure, and penalty for late payment. 
    
   These fees vary depending on the lender and the loan product. Further, it directly influences your EMI. The higher the charges, the higher your EMI, making it tough to repay your loan faster.
    

Also Read: Can I prepay my personal Loan without any extra charges?
 

4. Raise your EMI

   You should consider loan rescheduling if you have received a good appraisal or if your new job has provided you with a significant pay hike. Remember that rescheduling does not always imply extending the tenure but also shortening the tenure or increasing the EMI.
    
   Confirm the rescheduling fees with your lender before requesting an EMI increase. If there are only a few months until the original loan closure date, then rescheduling may cost you more. In such a scenario, it is best to repay the dues according to the original loan term. Raising the EMI through rescheduling is usually recommended for long-term loans such as a home loan or a loan against property. 
    

5. Make part prepayments

   If you own a business, there may be a few months when your profit exceeds your expectations. Similarly, salaried employees frequently receive festival bonuses or incentives.  It is best to make a partial prepayment using this income if you do not have any investment plans or other financial responsibility. For this purpose, you can also use money from investment maturities or windfall gains from the stock market.
    
   Partial prepayment comes with a small fee. But in the case of a mortgage loan secured by a floating interest rate, no fee is levied. Apart from partial payment, another option is to pay increased EMIs every few months. All this will help you avoid fees and close the loan faster.
    

6. Balance transfer

   If the market interest rate has fallen significantly, but you borrowed the loan at a higher rate, then you can opt to transfer your outstanding debt to a new lender. Refinancing allows you to benefit from a lower interest rate while reducing a repayment term. 
    
   In the case of a mortgage loan, if you have borrowed funds at a fixed interest rate, you may request that the lender allow you to switch to a floating interest rate. This will help reduce your EMI burden and aid in faster repayment.
    

7. Additional income

   Always look for ways to increase your income. Nowadays, many people are relying on multiple sources of income. Whether it is a small business or a freelancing gig, having a side income will give you the necessary funds to close your loan faster.
    
   You can also earn passive income by renting out spare property or putting your car or bike on a rental service. Investing in the stock market is another side hassle that can help you earn, but you must first understand the market and its risks.  Having an additional income will help you pay higher than the EMI and close your loan earlier.
    

8. Know about Pradhan Mantri Home loan Subsidy

   The Pradhan Mantri Awas Yojana (PMAY) was introduced by the Government of India with an aim to making housing affordable for all. So, if you are planning to apply for a home loan, then make sure to know about the home loan subsidy. Under this scheme, you can avail interest subsidy on purchase, construction, extension, or home renovation.
    

9. Use the amount saved on tax

   When you apply for a home loan, you get various tax advantages. These are:
    

   • Section 80C

     It allows you to reduce your taxable income by Rs 1,50,000. The section applies to the repayment of the principal amount of a home loan.

   • Section 24(b)

     If you have secured a loan to construct or buy a new home, you can deduct up to Rs 2,00,000 in interest payments. This benefit is available on an accrual basis rather than when you made the payment.

   • Section 80EE

     If you are purchasing a home for the first time, you are eligible for an additional tax benefit of Rs 50,000 under this section. However, you can get this benefit if the loan amount is less than Rs 35,00,000 and the property price is less than Rs 50,00,000.
      
     You may use the tax savings from this section to pay off a portion of your mortgage. In the case of a personal loan or any other loan where the funds or property financed on the loan are used for business purposes, claim the interest payment as a deduction, and the amount can then be used for paying off the loan.
      

To Conclude

Paying off your loan before the binding due date is not difficult. You can do so by transferring your balance, directing your tax refund toward repayment, increasing your EMIs regularly, and employing a few of the other methods listed above. But before executing any tips, it is critical to check with your lender about prepayment and rescheduling fees.