Hyderabad: Many of us think that we cannot change the term of a loan that is already taken. If our repayments are regular, we can ask the banks or financial institutions to reduce the loan term. Once the loan term is reduced, the EMI will go up, leading to the early closure of the loan. If you have the financial capacity, you can as well ask for an additional increase in EMI (equated monthly instalment).
Also, we can make partial payments so as to reduce the principal component of our loan. This is one way to bring down the interest burden to a large extent. We can as well pay one or two EMIs additionally every year. Unexpected funds like bonus and surplus can be used for this purpose. Some firms collect a certain fee when we make partial repayments. However, banks won't collect any such fee on home loans.
If there is a chance, we should transfer the loan to another bank that offers a lower interest loan. This should be considered only when there is at least a 0.75 to 1 per cent difference in interest rate. If the new creditor provides an attractive interest besides exemption in processing and other fees, this should be chosen. Carefully know expenses and benefits before shifting a loan to another bank. Since home loans are long-term, even a small difference in interest will lead to a higher surplus.
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Those having a higher credit score will have an exemption in interest rate. You should inform your bank about your increased credit score. Find out if you are eligible for any concession. Stay away from loans that charge higher interest rates. Even if such loans are already taken, they should be closed as early as possible. Even smaller loans are difficult to repay if they are in excess. In place of them, it is easier to repay a bigger loan. Before taking a new loan, think about the future financial burden because of hikes in interest rates. Only then, we should decide on the total amount of loan that can be taken.
