Best Strategies to Reduce Your Loan EMI in 2025

Priya, a young professional in Mumbai, recently secured a home loan of ₹50 lakh at an interest rate of 9% per annum for a tenure of 20 years. Her Equated Monthly Instalment (EMI) stands at approximately ₹44,986. With rising living costs, Priya finds this EMI to be a strain on her monthly budget.

In February 2025, the Reserve Bank of India (RBI) announced a 25 basis points (0.25%) reduction in the repo rate, bringing it down to 6.25%. This move is expected to make borrowing more affordable as banks may pass on the benefit to consumers. 

If Priya's bank reduces her home loan interest rate to 8.75% in response, her EMI would decrease to about ₹44,186, saving her ₹800 monthly and approximately ₹1,92,000 over the loan's tenure.

Such reductions can reduce the financial burden on borrowers. However, beyond relying on policy changes, there are strategies you can try to reduce their loan EMIs. Keep reading to find out.

Opt for a Longer Loan Tenure

Extending your loan tenure is one of the easiest ways to reduce your EMI. When you spread the repayment over a longer period, the monthly instalment automatically decreases.

For example, let’s assume Ravi extends his loan tenure from 15 years to 25 years while keeping the interest rate the same (8.5%). His EMI will drop hugely.

As the table shows, by extending his tenure to 25 years, Ravi can reduce his EMI from ₹35,973 to ₹32,073, saving around ₹3,900 each month. 

However, a longer tenure also means paying more interest over time. This method works well if your immediate concern is managing monthly cash flow.

When should you choose this?

• If you’re struggling with monthly expenses.
• If you expect your income to increase in the future.

2. Consider Loan Refinancing or Balance Transfer

Loan refinancing (or balance transfer) allows you to shift your loan from one bank to another, usually to get a lower interest rate. Let’s say Ravi finds another bank offering an interest rate of 7.5% instead of his current 8.5%.

Here’s how much he could save by switching:

• Current EMI: ₹35,973 (at 8.5% for 15 years)
• New EMI: ₹37,109 (at 7.5% for the remaining 10 years)

Though the EMI may seem slightly higher, since the remaining term is shorter, Ravi will save significantly on total interest. Plus, if he negotiates a better deal with the new lender for a longer tenure or a reduced rate, the EMI could come down further.

Points to consider before a balance transfer:

• Processing fees from the new bank.
• Prepayment penalties from the current lender.
• Overall savings after accounting for these costs.

When is refinancing a good option?

• If there’s a huge difference in interest rates.
• If your credit score has improved since taking the original loan.

3. Make a Higher Down Payment

A bigger down payment means borrowing less money, which directly reduces your EMI. Let’s say Ravi was initially planning to make a 10% down payment (₹4 lakh) on his ₹40 lakh loan. If he increases the down payment to 20% (₹8 lakh), his loan requirement drops to ₹32 lakh.

Here’s how this impacts his EMI:

• Loan Amount with 10% Down Payment (₹36 lakh): EMI = ₹32,376 (at 8.5% for 20 years)
• Loan Amount with 20% Down Payment (₹32 lakh): EMI = ₹28,821 (at 8.5% for 20 years)

By paying an extra ₹4 lakh upfront, Ravi saves ₹3,555 every month and this reduces his interest payout over time.

Why should you consider a higher down payment?

• Reduces the overall loan amount.
• Saves you a significant amount of interest in the long term.
• Improves your chances of loan approval with better terms.

When should you do this?

• If you have surplus savings.
• If you’re receiving a bonus or other windfall.

4. Choose Loans with Step-Up or Flexible EMI Options

Step-up or flexible EMI loans allow you to pay lower EMIs initially and gradually increase payments as your income grows. This is especially helpful for young professionals whose salaries will likely increase in the future.

Take the case of Priya, a software engineer in Hyderabad, who took a ₹30 lakh home loan for 20 years at 8.5% interest. 

Instead of a regular EMI, she chose a step-up EMI option:
 

In this plan:

• Her initial EMIs were manageable when her salary was low.
• As her income grew, she paid higher EMIs, reducing the total interest paid.

Benefits of Step-Up Loans:

• Low initial EMIs reduce the financial burden.
• You can increase payments as your income rises.
• Overall interest payout reduces as the higher payments kick in sooner.

When should you choose this option?

• If you expect your income to increase steadily.
• If you’re just starting your career and want to manage cash flow better.

5. Make Part-Payments Whenever Possible

Part-payment allows you to pay off a portion of your loan early, reducing the outstanding principal. This directly reduces your EMI or shortens your loan tenure.

Let’s say Raj, from Delhi, has a ₹15 lakh loan for 10 years at 9% interest, with an EMI of ₹19,045. After two years, he receives a bonus of ₹2 lakh and uses it for part-payment.

How does this help?

• Reduces the principal from ₹13.2 lakh to ₹11.2 lakh.
• Lowers his EMI to ₹16,600.
• Alternatively, if he keeps the EMI the same, his tenure reduces by almost 2 years.

Benefits of Part-Payments:

• Reduces the principal amount, thus reducing future EMIs.
• Lowers the total interest paid over the loan period.
• Helps close the loan faster if EMIs remain unchanged.

When should you make part-payments?

• When you get a bonus, tax refund, or other windfall.
• When you have extra savings after covering emergency funds.

Before making part-payments, always check if your lender charges any penalties for prepayments, especially for fixed-rate loans.

6. Switch to a Lender with Lower Processing Fees

Did you know that processing fees can quietly increase your loan costs? These are charges you pay upfront when a bank processes your loan application. Though these fees may seem small at first, they can add up, especially if you switch loans frequently.

Let’s take an example of Anita from Kolkata, who plans to transfer her ₹20 lakh home loan to another bank offering a lower interest rate. 

However, she notices that the new bank charges a processing fee of 1% (₹20,000), while her existing bank had charged only 0.5% (₹10,000).

Here’s a breakdown of her costs:

Though the new bank offers lower EMIs, the high processing fee reduces her overall savings. If Anita finds another lender with a processing fee of 0.25% and similar EMI benefits, she can save even more.

How can you save on processing fees?

• Always compare fees between lenders before transferring loans.
• Negotiate with your bank for fee waivers or reductions.
• Look for promotional offers where processing fees are waived.

When should you switch?

• If the overall savings (including processing fees) are significant.
• If the new lender offers better loan terms and services.

7. Improve Your Credit Score for Better Loan Terms

A good credit score is like a golden ticket to better loan deals. Banks and financial institutions in India check your CIBIL score (or other credit scores) before offering you loans. A score above 750 can help you get a loan with a lower interest rate, which means lower EMIs.

How does a better credit score help?

Let’s take the example of Sameer, an IT professional from Pune. He applied for a ₹10 lakh personal loan. Initially, with a credit score of 680, the bank offered him an interest rate of 12% for a tenure of 5 years. His EMI was ₹22,244.

Sameer worked on improving his credit score by:

• Paying his credit card bills on time.
• Keeping his credit utilisation below 30%.
• Avoiding new loan applications for six months.

After 8 months, his score improved to 780. Now, a different bank offered him the same loan at an interest rate of 9.5%. His new EMI became ₹21,031.

Here’s a comparison:

Sameer saves ₹1,213 every month and a total of ₹72,760 over 5 years.

Simple ways to improve your credit score:

• Always pay EMIs and credit card bills before the due date.
• Don’t use more than 30% of your total credit limit.
• Avoid applying for multiple loans at the same time.
• Check your credit report regularly for any mistakes and get them corrected.

When should you work on your credit score?

• If you’re planning to take a new loan soon.
• If you’re thinking about refinancing or consolidating your loans.

8. Use Windfall Gains for Prepayment

A windfall gain is any unexpected money you receive, such as a bonus, tax refund, inheritance, or profit from selling an asset. Instead of spending it all, using a part of this money for loan prepayment can help reduce your EMIs or shorten your loan tenure.

Let’s look at an example:

Meena, a school teacher in Delhi, took a ₹15 lakh home loan for 15 years at an interest rate of 8.5%. Her EMI is ₹14,778. After five years, she receives a Diwali bonus of ₹2 lakh. Instead of spending it, she uses the bonus for a part-prepayment.

What happens next?

• Loan amount reduces from ₹12 lakh to ₹10 lakh.
• EMI reduces to ₹12,315 if she keeps the tenure unchanged.
• Alternatively, she can keep her EMI the same and shorten the loan tenure by almost 2 years.

Before vs. After Prepayment:

Meena saves around ₹2.45 lakh in interest over the remaining tenure of her loan. Plus, her EMI reduces by ₹2,463 every month, giving her more breathing room in her monthly budget.

Benefits of using windfall gains for prepayment:

• Reduces your principal amount, leading to lower EMIs.
• Cuts down on the total interest you pay over time.
• Helps you close your loan early, offering peace of mind.

When should you prepay your loan?

• When you receive a bonus, tax refund, or inheritance.
• If your lender doesn’t charge heavy prepayment penalties (especially for fixed-rate loans).

Conclusion 

Lowering your loan EMI doesn’t always mean stretching your finances thin. If you extend your loan tenure, switch to a better lender, or make a higher down payment, you need to find what works best for your financial situation.

Just like Ravi, you can reduce your financial burden by making smart choices and planning ahead. Always compare offers from banks, negotiate better terms, and use online EMI calculators to estimate your savings.

In 2025, as interest rates fluctuate and new financial products hit the market, staying informed will help you save more and stress less. So, take charge of your finances today, your future self will thank you!

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LoansJagat Team

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