Personal Loan EMI Too High? Here’s How to Lower It Fast in 2025

Raghav, a 26-year-old graphic designer from Mumbai, took a personal loan of ₹4,00,000 at 15% interest for 5 years. His EMI of ₹9,515 felt manageable initially, but after a salary cut, it became a burden. 

He struggled to pay rent, bills, and the EMI, often dipping into savings. One day, his banker friend suggested reducing his EMI without defaulting. Intrigued, Raghav explored options and discovered smart tricks that could significantly lower his monthly payments.

His financial stress began easing, and he wondered, "How exactly did this work?" If you are also struggling with high EMIs, here is what you need to know…

1. Opt For A Balance Transfer

If your loan EMI feels too high, one effective way to reduce it quickly is by opting for a balance transfer. This means moving your existing loan to a new lender who offers a lower interest rate. Doing this can lower your monthly payments and save money over time.

What Is a Balance Transfer?

A balance transfer is when you shift your remaining loan amount from your current bank to another one offering better terms, like a lower interest rate or a longer repayment period. This can reduce your EMI and make your loan easier to manage.​

Hamza’s Story: How He Lowered His EMI

Hamza is a 28-year-old software engineer living in Bengaluru. 2 Years ago, he took a personal loan of ₹3,00,000 at an interest rate of 18% for 3 years. His monthly EMI was around ₹10,845.​

After paying EMIs for 12 months, Hamza learnt about balance transfers. He found a bank offering a lower interest rate of 11.29%. He transferred his remaining loan balance of ₹2,17,254 to this new bank.

With the new interest rate, his EMI dropped to ₹10,155. This meant he saved ₹690 every month. Over the remaining 24 months, he saved a total of ₹16,560.​

Balance Transfer Example

By transferring the remaining loan balance of ₹9,19,966 from a lender charging 16% interest to one offering 10%, the borrower reduces their monthly EMI by ₹985. Over the remaining 48 months, this results in a total savings of ₹44,325.​

Benefits of a Balance Transfer

• Lower Interest Rate: Switching to a bank with a lower interest rate reduces your EMI.
  
  
• Monthly Savings: A lower EMI means more money is available each month.
  
  
• Total Savings: You pay less interest over time, saving you money.
  
  
• Better Loan Terms: You might get options like a more extended repayment period or additional features.​

Things to Consider Before a Balance Transfer

• Processing Fees: The new bank may charge fees for the balance transfer.
  
  
• Foreclosure Charges: Your current bank might charge a fee for closing your loan early.
  
  
• Credit Score: A good credit score increases your chances of getting better offers.
  
  
• Remaining Loan Tenure: Balance transfers are more beneficial if you have more time to repay your loan.

If your loan EMI is too high, a balance transfer can be a smart move. By switching to a lender with a lower interest rate, you can reduce your monthly payments and save money over time. Always compare offers from different banks and consider any additional fees before deciding.

2. Choose A Reducing Rate of Interest

If you are seeking ways to reduce your loan EMI, opting for a reducing interest rate can be wise. This method calculates interest on the outstanding loan balance, leading to lower payments over time.

What is a Reducing Rate of Interest?

A reducing rate of interest, also known as a diminishing rate, calculates interest on the remaining loan amount after each EMI payment. As you repay the loan, the principal decreases, and so does the interest charged. This approach results in lower total interest paid over the loan tenure than a flat interest rate, where interest is calculated on the entire principal throughout the loan period.​

Khushi's Experience: Choosing a Reduced Interest Rate

Khushi, a 30-year-old Bengaluru teacher, needed a loan of ₹5,00,000 for home renovations. 

She had two options:

• Flat Interest Rate: 10% per annum
• Reducing Interest Rate: 10% per annum

At first glance, both rates seemed identical. However, Khushi learnt that with a flat rate, she would pay ₹50,000 in interest each year, totalling ₹2,50,000 over 5 years. 

In contrast, the reducing rate would calculate interest on the decreasing principal, resulting in a total interest of approximately ₹1,36,518 over the same period. By choosing the reducing rate, Khushi saved over ₹1,13,000 in interest payments.​

Comparison: Flat vs. Reducing Interest Rates

Benefits of Choosing a Reduced Interest Rate

• Lower Total Interest: Interest decreases over time, reducing the overall cost of the loan.
  
  
• Fair Calculation: Interest is charged only on the outstanding principal, making it a more equitable method.​
  
  
• Encourages Early Repayment: Paying more than the EMI reduces the principal faster, leading to lower interest payments.

Considerations Before Opting for a Reduced Interest Rate

• Complex Calculations: The EMI structure can be more complicated than flat rates.
  
  
• Variable Interest Component: The interest portion of the EMI decreases over time, which may affect budgeting.
  
  
• Lender Policies: Not all lenders offer reduced interest rates; it is essential to compare options.

Opting for a reduced interest rate can significantly lower your loan EMI and the total interest paid over the loan tenure. As demonstrated by Khushi's experience, understanding the difference between flat and reducing interest rates is crucial in making informed financial decisions. 

Always compare loan offers and consult with financial advisors to choose the best option for your needs.

3. Make Part Payments

If your personal loan EMI feels too high, making part payments can help reduce it quickly. This means paying extra money towards your loan and your regular EMI. By doing this, you can lower your monthly payments and save money over time.​

What is a Part Payment?

A part payment is when you pay an extra amount towards your loan, beyond your regular EMI. 

This additional payment reduces the principal amount of your loan, reducing the interest you pay. Over time, this can lead to lower EMIs or a shorter loan tenure.

Lokesh's Experience: Making a Part Payment

Lokesh, a 30-year-old engineer from Bengaluru, took a personal loan of ₹5,00,000 at a 14% interest rate for 5 years. His monthly EMI was ₹11,634.

After paying EMIs for 12 months, Lokesh received a bonus of ₹50,000. He decided to use this bonus to make a part payment towards his loan.

By making this part payment, Lokesh reduced his outstanding principal, which decreased the total interest he had to pay. He chose to keep his EMI the same, which reduced his loan tenure, allowing him to become debt-free sooner.

Example: Impact of a Part Payment

Benefits of Making Part Payments

• Interest Savings: By reducing the principal amount, you pay less interest over the loan tenure.
  
  
• Lower EMI or Shorter Tenure: Depending on your preference, you can reduce your EMI or shorten your loan tenure.​
  
  
• Faster Loan Repayment: Part payments can help you repay your loan faster.
  
  
• Improved Credit Score: Timely repayments and reducing your loan burden can positively impact your credit score.

Things to Consider Before Making a Part Payment

• Prepayment Charges: Some banks may charge a fee for part payments. Check with your lender about any applicable charges.
  
  
• Minimum Part Payment Amount: Lenders may have a minimum amount for part payments. Ensure your extra payment meets this requirement.
  
  
• Loan Agreement Terms: Review your loan agreement to understand the terms related to part payments.

Making part payments towards your loan can be a smart strategy to reduce your EMI and save on interest. Lokesh's example shows that even a single part payment can lead to significant savings and a shorter loan tenure. 

Before making a partial payment, consult with your lender to understand any associated charges and ensure they align with your financial goals.

4. Always Pay Your EMIs On Time

Paying your EMIs (Equated Monthly Installments) on time is crucial for maintaining financial health. It not only helps you avoid penalties but also positively impacts your creditworthiness.

Why Timely EMI Payments Matter

When you take a loan, you must repay it in monthly installments. Missing these payments can lead to several issues:

• Late Payment Fees: Lenders often charge a penalty for missed or delayed payments, which increases the overall loan cost.
  
  
• Credit Score Impact: Each missed EMI can reduce your credit score by 50 to 70 points, making it harder to secure loans in the future.
  
  
• Legal Consequences: Consistent defaults may lead lenders to classify your loan as a non-performing asset (NPA) and initiate legal action.

Sakshi's Experience: The Importance of Timely Payments

Sakshi, a 28-year-old marketing professional from Bengaluru, took a personal loan of ₹3,00,000 at a 12% interest rate for 3 years. Her monthly EMI was ₹9,958.

Sakshi missed two EMI payments in the first year due to unforeseen expenses. As a result:

• She incurred late payment fees totalling ₹1,500.
• Her credit score dropped from 780 to 710.​
• When she applied for a car loan later, her reduced credit score resulted in higher interest rates.

Realising the consequences, Sakshi set up an auto-debit facility to ensure timely payments and gradually improved her credit score.​

Impact of Timely vs. Delayed EMI Payments

Benefits of Paying EMIs on Time

• Improved Credit Score: Consistent payments enhance your creditworthiness, making it easier to obtain future loans.
  
  
• Avoidance of Penalties: Timely payments help you avoid late fees and additional interest charges.​
  
  
• Better Loan Offers: A good repayment history can lead to better loan terms and lower interest rates.
  
  
• Financial Discipline: Regular payments instill financial discipline and reduce stress.

Tips to Ensure Timely EMI Payments

• Set Up Auto-Debit: Automate your payments to avoid missing due dates.
  
  
• Maintain a Budget: Allocate funds specifically for EMI payments each month.
  
  
• Emergency Fund: Keep a reserve to cover EMIs during unforeseen circumstances.​
  
  
• Regular Reminders: Use calendars or apps to remind you of upcoming payments.

Timely EMI payments are essential for maintaining financial stability and building a strong credit profile. As seen in Sakshi's experience, missing payments can have lasting repercussions. 

By adopting disciplined financial habits and leveraging tools like auto-debit, you can ensure timely repayments and secure a healthier financial future.​

Conclusion

If your loan EMI feels too high, there are simple ways to bring it down. You can transfer your loan to a bank with a lower interest rate, which reduces your monthly payment. 

Choosing a reduced interest rate over a flat one can save you money over time. Making part payments with extra cash helps lower the loan amount faster, cutting your interest. And always pay your EMIs on time to avoid fees and protect your credit score. 

These steps are easy to follow and can make your loan more manageable. Planning carefully and staying disciplined can reduce your EMI stress and save money in the long run.

FAQs

1. What is a balance transfer for a personal loan?

A balance transfer means moving your loan to another bank offering a lower interest rate. This reduces your EMI and saves money over time.

2. How does a reduced interest rate help lower EMI?

A reducing rate calculates interest only on the remaining loan amount, not the full principal. This lowers your total interest and EMI compared to a flat rate.

3. Can I pay extra on my personal loan to reduce EMI?

Yes, making part payments reduces your loan principal faster. This cuts interest and can shorten your loan tenure or lower future EMIs.

4. What happens if I miss an EMI payment?

Missing EMIs leads to late fees and a drop in your credit score. Always pay on time to avoid penalties and loan rejection risks later.

5. Does a good credit score help get a lower EMI?

Yes, a high credit score helps you qualify for lower interest rates. This directly reduces your EMI and total loan cost.

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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?