How to Cut Your EMI by 50% Through Smart Loan Consolidation Strategies

Rajesh, a young Mumbai professional, handles multiple loans—a ₹5,00,000 personal loan at 15% interest, a ₹3,00,000 car loan at 12%, and ₹2,00,000 in credit card debt at a 24%. 

Each month, he struggles to meet the combined EMIs, which consume a significant portion of his salary. Rajesh isn't alone; many 
Indians face similar financial challenges. 

According to the Reserve Bank of India, household debt in India has risen to 42.9% of GDP as of June 2024. This growing debt burden underscores the need for effective strategies to manage and reduce EMIs. 

One such strategy is smart loan consolidation, which can simplify repayments and potentially cut your EMI by up to 50%. Borrowers can ease their financial stress and regain control over their finances by merging multiple debts into a single loan with a lower interest rate.​

1. Combine Multiple Loans Into One

Rajesh, a 35-year-old IT professional, was paying EMIs for a personal loan, a car loan, and a home loan. His total monthly EMI was ₹40,000. The interest rates differed for each loan, making it even more complicated. 

He decided to consolidate his loans into one with a lower interest rate. This reduced his EMI to ₹20,000—50%!

How it works:

• Instead of managing multiple loans, you take one big loan to pay off all your existing loans.
• The new loan comes with a lower interest rate and an extended repayment period.
• You now pay only one EMI instead of many, making budgeting easier.

Here is a comparison of Rajesh’s loan payments before and after consolidation:

By combining all his loans into one, Rajesh reduced his EMI burden by half!

2. Opt for a Longer Repayment Period

A straightforward way to reduce your EMI is by choosing a more extended repayment period. The longer the tenure, the smaller the EMI. But remember, a longer loan term means you will pay more interest over time. So, you must balance the EMI reduction with the total interest paid.

Example:

A marketing manager, Neha took a personal loan of ₹5,00,000 at 12% interest. She had two options

• Option 1: Repay in 3 years (36 months)
• Option 2: Repay in 6 years (72 months)

Let’s compare her EMI under both options:

• Option 1 (3 years): EMI = ₹16,607
• Option 2 (6 years): EMI = ₹9,722

By doubling her loan tenure, Neha lowered her EMI by 41%, making her monthly budget much easier to manage.

When should you choose a more extended repayment period?

• If your current EMI is too high and affecting your daily expenses.
• If you need financial flexibility for other goals like children’s education or home expenses.
• If the total interest paid over time is acceptable for you.

3. Negotiate Lower Interest Rates

Many people don’t realise they can negotiate lower interest rates with banks. If you have a good credit score (above 750), a stable income, and a history of timely payments, banks may reduce your interest rate.

Example: Amit had a home loan of ₹30,00,000 at an interest rate of 9.5%. He contacted his bank and requested a rate reduction. 

The bank offered him a lower rate of 8.5% because of his good credit score. This small change reduced his EMI from ₹28,000 to ₹26,000, saving him ₹2,000 every month.

Tips to negotiate a lower interest rate:

• Improve your credit score by paying EMIs and credit card bills on time.
• Show stable income through salary slips or bank statements.
• Compare different banks and use better offers as a bargaining tool.
• Ask your existing bank if they can match a competitor’s lower rate.

4. Refinance Your Loan at a Lower Rate

Many people pay high interest rates on their loans without realising they can reduce them. Refinancing means replacing your existing loan with a new one with a lower interest rate. This can reduce your monthly payments, make repayment easier, and help you save money. 

For example, if you have a loan of ₹1,00,000 at an interest rate of 12% for 5 years, your monthly EMI is around ₹2,225. If you refinance at a lower rate of 8%, your EMI drops to about ₹2,028. That saves ₹11,820 every year! Imagine if your loan amount is higher; the savings will be even bigger. 

Many banks and financial institutions offer refinancing options. Before making a decision, it is important to compare different lenders, check processing fees, and calculate the total cost. Refinancing is a smart way to reduce your financial burden and achieve long-term savings.

5. Choose Secured Loan Consolidation

If you have multiple loans with different interest rates, due dates, and EMIs, managing them can be stressful. Secured loan consolidation allows you to combine all your loans into a single loan with one EMI and a lower interest rate. 

This helps in reducing financial stress and making repayments easier. Here’s how secured loan consolidation can benefit you:

1. Lower Interest Rates

Secured loans, such as loans against property or gold loans, usually have lower interest rates than personal loans or credit card loans. If you are paying 18% interest on a personal loan and 36% on a credit card, consolidating them into a secured loan at 10% can save a lot of money.

2. Extended Repayment Period

A secured loan gives you the flexibility to choose a longer repayment period. If you have ₹2,00,000 in outstanding loans and you consolidate them into a secured loan with a 10-year repayment plan, your EMI will be lower than repaying multiple loans with short tenures.

3. Better Credit Score

When you miss EMI payments due to multiple loans, your credit score suffers. With a consolidated loan, you have only one EMI to pay, reducing the chances of default and improving your credit score over time.

4. Simplified Loan Management

Instead of remembering multiple due dates, paying different amounts every month, and dealing with multiple lenders, secured loan consolidation simplifies everything. One loan, one EMI, and one lender make life much easier.

5. Example Calculation (Tabular Format)

6. Transfer High-Interest Loans to Low-Interest Options

Many people continue paying high-interest loans without exploring better options. Transferring high-interest loans to lower-interest ones can save a lot of money and reduce financial stress. Here’s why you should consider this:

• Lower EMI Burden: Moving a loan from 15% to 9% interest can save thousands of rupees every year.
  
  
• Increase in Savings: Suppose you have a loan of ₹1,00,000 at 14% interest, paying ₹2,327 as EMI. If you transfer it to a 9% loan, the EMI reduces to ₹1,902, saving ₹5,080 every year!
  
  
• Faster Repayment: With a lower interest rate, a bigger portion of your EMI goes towards repaying the principal amount, helping you close the loan faster.
  
  
• Better Loan Terms: Some lenders offer better benefits, like no prepayment charges or flexible repayment terms when you transfer your loan.
  
  
• Reduce Overall Debt: If you have multiple loans at high interest, transferring them to a single low-interest loan can make it easier to manage and reduce the total amount you pay over time.
  
  
• Improves Credit Score: If you are struggling with repayments, transferring to a lower interest rate reduces financial stress and helps you pay on time, improving your credit score.
  
  
• Example of Savings:  If you have a loan of ₹5,00,000 at 14% for 5 years, your EMI is about ₹11,634. If you transfer to a 9% loan, your EMI drops to ₹10,379, saving ₹15,072 per year and ₹75,360 over 5 years!

7. Non-Personal Loan Consolidation

Taking multiple loans can be stressful, especially when the monthly EMIs add up. If you have business loans, vehicle loans, education loans, or other financial commitments, managing them separately can be a challenge. 

For example, imagine a small business owner managing three loans: a business loan of ₹5,00,000 at 14% interest, a vehicle loan of ₹3,00,000 at 12% interest, and an education loan of ₹4,00,000 at 11% interest. 

Paying these separately means multiple EMIs and different due dates. If consolidated at a 10% interest rate, the monthly EMI reduces, easing financial pressure.

8. Look for Special Offers from Lenders

Before choosing a loan, it is important to check for special offers from banks and NBFCs. Many lenders provide lower interest rates, cashback, and flexible repayment options during certain seasons or for specific borrowers. 

These offers can help in reducing the overall cost of a loan. For example, banks may provide a 0.5% discount on interest rates for existing customers or waive processing fees for digital applications. Even a small discount can make a big difference in the long run.

1. Lower Interest Rate Offers

Banks and NBFCs sometimes reduce interest rates for a limited time. If a standard business loan has an interest rate of 12%, an offer might bring it down to 10.5%. This helps in saving money on EMIs.

2. Processing Fee Waiver

Loan processing fees can be a big cost, usually between 1% to 3% of the loan amount. Many lenders offer waivers or discounts on processing fees during festivals or special promotions. If the fee on a ₹10,00,000 loan is 2%, a waiver saves ₹20,000 instantly.

3. Prepayment Flexibility

Some lenders charge extra fees for early loan repayment. However, special offers may allow free prepayment up to a certain limit. This is helpful for businesses or individuals who get lump sum income and want to close loans early.

4. Special Discounts for Women Entrepreneurs

Women entrepreneurs often get special benefits such as reduced interest rates, zero processing fees, or higher loan eligibility. For instance, an NBFC may offer business loans to women at 9.5% instead of the usual 11%.

5. Cashback and Reward Points

Some banks provide cashback on the first EMI payment or reward points for loan repayment through specific credit cards. A borrower may get ₹5,000 cashback on a ₹5,00,000 loan, effectively reducing costs.

Conclusion

Smart loan consolidation can significantly reduce your monthly EMI burden, helping you regain financial control. By combining multiple loans into one, opting for a longer repayment tenure, negotiating lower interest rates, refinancing, or using secured loans, you can cut EMIs by up to 50%. 

Always compare lenders, check processing fees, and consider long-term interest costs before making a decision. A well-planned consolidation strategy ensures a stress-free repayment journey while keeping your financial goals intact.

FAQs

1. What is loan consolidation?
 Loan consolidation means combining multiple loans into a single loan with a lower interest rate and one EMI.

2. How can I reduce my EMI by 50%?
 You can lower EMI by choosing a longer repayment period, negotiating lower interest rates, refinancing, or consolidating loans.

3. Does loan consolidation affect my credit score?
 If managed well, consolidation improves your credit score by ensuring timely payments and reducing defaults.

4. What are the risks of loan consolidation?
 The main risk is paying more interest over time if you opt for a longer repayment period. Always check total interest costs before proceeding.

5. Can I consolidate secured and unsecured loans together?
 Yes, secured loan consolidation allows you to combine both types of loans into one lower-interest loan, like a loan against property.

Apply for Loans Fast and Hassle-Free

Apply Now

About the Author

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?