Hello Readers!
Many of our big goals require a sum of money that cannot be met through our own resources, and that’s why we plan to save and invest money for these. While many plan to save and investing money for their goals, many don’t plan the same way. In fact, they look towards availing of loans to achieve their goals.
Loans act as a gateway to fulfilling various financial goals, that include owning our dream house, purchasing a new vehicle, or financing a child's higher education. Due to increased credit access, many individuals end up simultaneously servicing multiple loans and later find it difficult to deal with and manage repayments of these loan amounts.
Well, here are some tips discussed below that would help you in managing your loan repayments.
Try Prepaying Whenever You Get The Chance!
While you repay your loan amount, do not miss any chance when you get to prepay your loan amount say when you get financial surpluses, like a bonus, or any redemption amount, they should always aim to make loan repayments. Prepayment of loan amount helps you get saved on interest cost, especially when made in the initial years of loan repayment.
In case if you have multiple loans levied on your name, try prepaying the loan that charges the highest interest rate. While you plan to prepay your loan amount, you need to consider certain things, the most prominent, if your has loan has term regarding charges applicable to prepayment.
While you plan to redeem your investment to prepay your loan amount, it is advised to look towards redeeming the surpluses parked in fixed income instruments such as fixed deposits, and short-term debt funds. Also do not enter your emergency fund or investments earmarked for crucial financial goals for prepaying or foreclosing loans. That may force you to take higher interest loans to tackle any financial emergency.
Opt For Balance Transfer Whenever Feasible!
Balance Transfer allows you to transfer or port your existing loan with a new lender that offers a lower interest rate, which ultimately reduces your overall interest rate and EMI burden.
Thus, it is advised to loan borrowers, who have significant residual loan tenure, do compare the interest charged on their existing loans to those offered by other lenders. If you find any significant differences in the interest rate charged that can help you save a good on your overall loan interest rate, it is advised the first approach your existing lender to reduce your interest rate. In case if he refuses to do so then go ahead with the transfer of the existing loan to the lender offering the lowest interest rate.
But before you move forward transferring your existing loan with the new lender to consider certain charges if applicable or not, like prepayment charges, charged by the existing lender and processing fee and other associated charges levied by the new lender. Consider transferring your existing loan with a new lender only if you find the overall savings significantly outweighing the associated costs.
To compare the interest charged levied to loans by different money lenders, you can visit online financial marketplaces. There you can find the details of the loan offered from various prospective lenders based on your monthly income, credit score, job profile, and other facets of your credit profile.
Include Loan EMI’s While Creating Emergency Fund!
The purpose of creating an adequate emergency fund is to tackle sudden financial emergencies or income disruptions due to sudden job loss, severe illness, disability, or other adverse life events. Ideally, an adequate emergency fund should be sufficient enough to meet your unavoidable monthly expenses for at least six months. Hence, those repaying existing loans should include their existing EMIs and other loan repayment obligations equivalent to at least six months in their emergency fund. This would allow them to repay their EMIs and other loan obligations during such periods of emergencies.
Keep reading our articles for more updates on finance and investment!!
For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).