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

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.​

Read More – Lower EMIs with a Debt Consolidation Loan

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

₹11,634

₹11,634

Part Payment Made

—

₹50,000

New Loan Tenure

60 months

52 months