Best Loan Repayment Hacks in 2025: How to Pay Less Interest & Save Money

Imagine managing a home loan of ₹50 lakh over 20 years at an interest rate of 9%. Your Equated Monthly Instalment (EMI) would be approximately ₹44,986. 

Over the loan tenure, you'd pay around ₹57.96 lakh just in interest, more than the principal amount borrowed. This scenario shows the impact of interest on long-term loans.

In February 2025, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6.25%. This move aims to stimulate economic growth and has a direct effect on lending rates, potentially lowering EMIs for borrowers. 

Let's explore practical strategies tailored for 2025 to help you reduce the interest burden on your loans. 

1. Make Extra Payments Toward Principal

How does this help?

Every loan has two parts—principal (the amount you borrowed) and interest (the extra amount you pay for borrowing). Interest is charged on the remaining principal balance. 

So, if you pay extra toward the principal, your loan amount reduces faster, and the interest charged will also drop.

Let’s say you borrowed ₹20 lakh for 15 years at 9% interest. Your monthly EMI would be around ₹20,285. If you pay just an extra ₹5,000 every month toward the principal, you can finish your loan 5 years early and save nearly ₹5 lakh in interest!

Quick Tip:

• Use your yearly bonus, tax refunds, or extra savings to make lump-sum payments toward your principal.
• Even paying an extra EMI once a year can make a huge difference.

2. Switch to Bi-Weekly Payments

What does it mean?

Instead of making payments once a month, you split your EMI into two smaller payments and pay every two weeks (bi-weekly). This small change results in one extra EMI payment every year because there are 52 weeks in a year (26 bi-weekly payments = 13 full EMIs).

How does it help?

• Reduces the principal faster.
• Cuts down on interest payments.
• Helps pay off the loan quicker.

Numerical Example:

If your EMI is ₹30,000 per month:

• In a year, you pay 12 EMIs = ₹3,60,000.
• With bi-weekly payments of ₹15,000, you pay 26 half-payments = ₹3,90,000.

This extra ₹30,000 reduces your principal faster and helps you close your loan sooner while saving you lakhs on interest.

Benefits of Bi-Weekly Payments

Arjun, a marketing executive in Mumbai, switched to bi-weekly payments for his ₹25 lakh loan. Not only did he clear his loan 3 years early, but he also saved around ₹4 lakh in interest without any major lifestyle changes!

3. Refinance for a Lower Interest Rate

What is refinancing?

Refinancing means replacing your existing loan with a new loan that has better terms—especially a lower interest rate.

Why should you refinance?

Interest rates in India change over time, often based on the Reserve Bank of India’s (RBI) decisions. If rates drop, refinancing can help reduce your EMI or shorten your loan term.

Read More – This Hack Can Save You ₹50,000+ on Your Loan Repayment

Imagine you took a loan of ₹50 lakh at 9% interest for 20 years.

• Your EMI = ₹44,986.
• Total interest paid = ₹57.96 lakh.

Now, let’s say after 5 years, the interest rate drops to 7%. If you refinance:

• Your new EMI = ₹38,765.
• You could save around ₹9 lakh in interest over the remaining loan period!

When should you refinance?

• If interest rates drop by at least 1%.
• If you have a good credit score.
• If you plan to stay in your home long enough to cover refinancing costs.

Pro Tip:

Be aware of processing fees or prepayment charges from your current bank before refinancing.

4. Utilise Loan Repayment Assistance Programs

In India, the government and some private organisations offer loan repayment assistance programs, especially for education and agriculture loans. These programs either help pay off a part of your loan or reduce your interest rate.

Common Programs in India:

• Education Loan Interest Subsidy Scheme: For students from economically weaker sections.
• Agriculture Loan Waiver Schemes: For farmers who face financial hardship.
• Employee Benefit Programs: Some companies help their employees with loan repayments as part of their benefits package.

How does it help?

These programs either reduce the interest you need to pay or cover part of your loan amount, helping you pay off your debt faster.

Example:

If you have a ₹10 lakh education loan with 9% interest:

• Without subsidy: You’ll pay ₹11.8 lakh over 10 years.
• With a 3% interest subsidy: You’ll pay around ₹10.5 lakh, saving ₹1.3 lakh in interest.

Quick Tip:

Check with your bank or employer if you qualify for any repayment assistance programs.

5. Round Up Your Payments

Instead of paying the exact EMI amount, round it up to the nearest ₹500 or ₹1,000. The extra money goes toward your loan’s principal, 
reducing the total interest paid over time.

How does it help?

These small extra payments seem insignificant but add up quickly and can shorten your loan term.

If your EMI is ₹17,850:

• Round it up to ₹18,000.
• The extra ₹150 every month means ₹1,800 extra paid each year.
• Over 10 years, that’s ₹18,000 paid toward the principal.

Impact of Rounding Up

6. Make Lump-Sum Payments When Possible

Lump-sum payments are large, one-time payments you make toward your loan in addition to your regular EMIs. This directly reduces your principal amount.

When can you make these payments?

• When you receive a bonus or incentives.
• After getting a tax refund.
• When you have extra savings.

How does it help?

A single large payment reduces the amount on which interest is calculated, saving you both time and money.

Example:

If you have a ₹15 lakh home loan with 8% interest for 15 years:

• Your EMI = ₹14,378.
• If you pay a lump sum of ₹1 lakh after 3 years, you could reduce the loan term by 1.5 years and save over ₹1.2 lakh in interest.

Benefits of Lump-Sum Payments

7. Prioritise High-Interest Loans First (Avalanche Method)

The Avalanche Method focuses on paying off loans with the highest interest rates first while continuing to make minimum payments on your other loans. 

Once the highest-interest loan is cleared, you move to the next one. This method saves you more money in the long run by reducing the interest you pay.

How does it work?

• List your loans from the highest to the lowest interest rate.
• Make extra payments toward the loan with the highest rate.
• Keep paying the minimum amount on other loans.
• Once the first loan is paid off, move to the next highest.

Example:

Raj has three loans:

• Personal Loan: ₹5 lakh at 13% interest
• Car Loan: ₹3 lakh at 9% interest
• Home Loan: ₹20 lakh at 7.5% interest

He should focus on paying off the personal loan first since it has the highest interest. By doing this, he will save more on interest than if he paid off the lower-interest loans first.

Benefits of the Avalanche Method

8. Automate Payments to Avoid Late Fees

Late payments can hurt your credit score and lead to penalty charges. Automating your EMIs ensures you never miss a due date, saving you money on late fees and protecting your credit health.

How does it help?

• Avoids Late Fees: Missing an EMI could cost you ₹500–₹1,000 in late charges.
• Improves Credit Score: Consistent on-time payments increase your CIBIL score.
• Peace of Mind: Set it and forget it, no more worrying about due dates.

Example:

If your EMI is ₹15,000 and you miss just two payments a year:

• Late fee = ₹750 per missed payment
• Total late fees = ₹1,500
• Interest on overdue amounts = Additional ₹1,000

By automating payments, you avoid ₹2,500 in unnecessary charges every year.

How to set up auto-pay:

• Use your bank’s auto-debit facility.
• Set up standing instructions via net banking.
• Link your EMI payments with your salary account for seamless deductions.

9. Shorten Your Loan Term

Instead of choosing a longer repayment period (like 20 years), opt for a shorter one (like 10–15 years). Shorter-term loans have higher EMIs but charge less interest overall, helping you save money in the long run.

Also Read - Loan Repayment Hacks That Can Save You Lakhs In Interest

How does it help?

• Reduces total interest paid.
• Clears your debt faster.
• Builds financial freedom sooner.

Let’s compare two loan terms for a ₹20 lakh home loan at 8% interest:

Savings: By choosing a 10-year term, you save ₹10.17 lakh in interest.

When should you shorten your loan term?

• If you get a salary hike or business income increase.
• If you can afford a higher EMI without compromising your lifestyle.
• When refinancing options offer better rates for shorter terms.

Suresh, an engineer from Bengaluru, increased his EMI from ₹18,000 to ₹25,000 after receiving a promotion. This helped him reduce his home loan term from 15 years to 10 years and saved him over ₹6 lakh in interest.

10. Negotiate Better Terms with Your Lender

Did you know that banks and lenders are often open to negotiation? If you have a good repayment history or a strong credit score, you can ask for better terms, like a lower interest rate, reduced processing fees, or even a waiver on prepayment charges.

How does it help?

Lower interest rates mean smaller EMIs and big savings over time.

Amit had a ₹20 lakh home loan at 9% interest for 15 years. After negotiating with his bank, he got the rate reduced to 7.5%. This small change helped him save over ₹2 lakh in interest across the loan term!

Quick Tip:

• Check current market rates before negotiating.
• Highlight your good credit score and repayment history.

Conclusion 

Loan repayment doesn't have to be a 20-year marathon. With simple changes like making extra payments, switching to bi-weekly installments, or refinancing when rates drop, you can save lakhs in interest and clear your debt years earlier.

If you’re still unsure, consult your bank or a financial advisor to find the best repayment strategy for your situation. Every rupee saved on interest is a rupee earned toward your financial freedom!

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?