Whether you’re a budding entrepreneur or someone with an established business, you’ll need a significant amount of money to ensure that your venture is a successful one. Of course, you could borrow the money from friends and relatives, issue shares to raise capital, or find venture capitalists willing to invest in your business. But all these sources of finance are difficult to access, and procuring the funds will involve sitting through a long process.
Loans are helpful when you need to buy something like a house or a car. Even a Personal Loan can bail you out of financial crisis. But when repayment begins in the form of EMIs, a major chunk of your monthly income can be drained away.
Spare time to thoroughly examine your repayment options, and you are sure to find ways to decrease your interest payments or shorten the loan tenure. Here are a few pointers that’ll help you manage your repayment better, so that you don’t default on a loan.
Prepayments on Your Loans
You can make prepayments on your loans whenever you have a sudden surplus of cash. When you take a loan, ensure that there are no prepayment charges, or if there are make sure they’re minimal. In the long run, this will help reduce the principal amount and the interest you pay on the loan.
Pay Larger EMIs to Close your Loan Quickly
You can increase your EMI amount if you’re earning more than what you were when you signed up for the loan, or if you have received money from sold assets. When you increase the EMI payments, the loan gets paid off quicker, which can save you a lot of money on interest payments. For instance, a home loan taken for 20 years might actually compute to almost double the loan amount when you finally close the loan. However, if you increase the EMI and close the loan in 15 years, you can save quite a lump sum in interest.
Migrate your Loan
You can enjoy the benefits of lower interest and make partial prepayments during the span of interest rate cuts. However, not all banks implement interest rate cuts at the same time. Your bank might take a longer timeframe to offer you the benefits of lower interests. In that case, you can consider shifting the loan to another bank, one that offers lower rates.
If you decide to do this, remember to keep the cost of switching in mind. Your current lender might levy a penalty for shifting the outstanding amount. Also, remember that you might have to pay processing fee and other charges at the bank you’re shifting to. If the proposed expenses are lower than the benefits you will receive, then shift your loan.
Perform Regular Loan Checkups
Once you start repayment on loans, you could get used to the routine payments and forget about finding ways to reduce the tenure. The loan you applied for, after satisfying the Personal Loan eligibility and agreeing to EMI and interest rate, could be subject to change. By periodically reviewing your repayment progress, you can keep an eye out for any change in policy.
Examine your Investments
Loans come at the expense of high interest rates. On the other hand, your investments, like fixed deposits, PPF, and EPF, might be paying you very little in terms of interest. So, you’re paying your lender a lot of money as interest, while you are getting minimum returns on your investments. In such a case, you could close or withdraw funds from some of these investments and pay off your outstanding loans. Doing this can cut down the interest you’ll have to pay, thus saving you a lot of money.
Innovative Loan Schemes
Some banks now offer loan schemes that combine loans with a line of credit. Basically, your loan is linked to an overdraft facility. The amount in the OD account will be deducted from the principal outstanding on your loan. This will not reduce the outstanding balance but the interest will be calculated on the reduced amount. The number of days you leave the deposit in your account will affect the reduction in interest.
However, these facilities come at a cost. The lender can opt to charge you a slightly higher interest than regular loan schemes. Withdrawing funds from the OD account might also involve some fees as well. So, evaluate your capability to close the loan, if you think this is the right course of action for you then sign up for a scheme.
Line of Credit
A line of credit is like a flexible loan granted by your bank or financial institution. It’s similar to a credit card, where you have access to a specified amount of money that you can withdraw as and when required.
The benefit of this source of finance is that interest is only charged once you actually withdraw funds from your line of credit, and the amount needs to be repaid within a pre-specified period of time.
Of course, this isn’t the ideal source of finance for one-time investments, but can be used in your business operations to smooth out discrepancies in monthly expenses. It’s also a great source of finance to access during projects where you can’t figure out the exact amount of funding required.
How to Calculate your EMI Online Using EMI calculator
The basic formula of calculating the EMI that includes principal amount, the tenor of the loan and rate of interest. It is a little bit complex procedure to calculate it manually. Make use of a Personal Loan EMI calculator online and calculate the ideal loan amount and EMIs you can afford. Once you’ve gotten all that sorted, sign for your loan and solve your financial issues.
The calculator of EMI is very simple to use, just required to execute is enter the following details:
- The Amount of Loan
- Tenor (In Months)
- Rate of Interest
You can directly type the values or move the slider according to the your requirement left/right.
Now the process of calculation it easily, even without taking the help from the lenders. Calculate EMI amount and make financial plans accordingly.
About Author: Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.