With the conclusion of the RBI’s Monetary Policy Committee (MPC) meeting last week, there are speculations that the central bank will not reduce repo rates at least in the first half of this year. At its bimonthly monetary policy committee meeting held on April 5, the top bank kept the repo rate unchanged at 6.5%.The MPC meeting hinted at a delay in interest rate cuts as concerns related to inflation remain a challenge for India. This has also dashed the aspirations of many secured loan customers who were hoping for early rate relief.
Any increase or decrease in interest rates has a direct impact on your secured Loan EMIs. If the interest rate rises, it may become more difficult for some people to afford a Secured loan, as their monthly repayments will be higher. Conversely, if the interest rate drops, obtaining a house loan can become more accessible.
Given the current scenario, it can’t be predicted when inflation will come under control to convince the top banks to cut rates. At a time when some experts are also anticipating an overall rate cut of up to 50 bps by the end of this year, this article will discuss 5 ways that can help Secured loan borrowers reduce their secured loan EMI.
1.Shift Your Loan Under the EBLR Regime:
Secured loan borrowers who availed loans years ago and whose loans are not under the EBLR (External Benchmark Based Lending Rate) are advised to shift their loans to the EBLR regime. There are high chances that you are paying a much higher interest rate compared to what your lender may be charging its new secured loan borrowers under the EBLR regime. It is advisable to request your lender to shift your loan to the EBLR regime; this will save you a sizable amount in interest. Additionally, this will benefit you when the interest rate starts to fall.
2.Consider Extending Your Secured Loan Tenure
If you are looking for a relaxation in your secured loan EMI due to a sudden financial emergency, you can consider extending the tenure of your loan. This option is usually good for those borrowers who have paid a considerable part of their principal and have scope for tenure extension up to their retirement.
For example, if you have 10 years left on your secured loan with an outstanding balance of Rs 40 lakh at 9%, then extending the tenure to 20 years can help you reduce your EMI by Rs 14,681. However, this option is not suited for all types of borrowers, especially those who are closer to retirement age.
Most financial institutions offer a tenure until the borrower turns 60 years old. Thus, a 45-year-old borrower may not be able to extend the tenure beyond 15 years. Note that the longer the tenure of your loan, the higher will be your interest outgo.
While the tenure extension option can be used as a short-term temporary measure, you should either restore the old tenure or make a partial prepayment to repay the amount faster.
Suggested Read: Difference Between Secured and Unsecured Loan
3.Transfer Your Loan to a Bank Charging a Lower Interest Rate
Not all banks charge the same interest rates on the secured loans they offer to their clients. Thus, secured loan rates vary from one bank to another. If you took a loan from a bank that is charging higher interest rates, you may end up paying a higher EMI. If you did not compare secured loan rates earlier when you applied for the loan, it is high time that you do so.
Since most secured loans are taken on a floating rate basis and there is zero penalty for shifting your loan, the only cost involved will be the fee charged by the new bank. If you switch to a new bank offering a competitive interest rate, a balance transfer can help you bring down your EMI.
4.Improve Your Credit Score to Become Eligible for Lower Rates
Many borrowers are initially forced to opt for higher secured loan loan rates if they do not have a good credit score. However, if you do not miss your monthly EMI payments, your credit score may improve. If your credit score improves, you can ask your lender to reduce your secured loan rate. The banks that had earlier denied your loan application due to a poor credit score may now look at your application more favorably.
5.Switch to Floating-Rate Loans
Fixed-rate loans usually charge higher interest rates throughout the loan tenure. Lenders typically charge at least a 1-2% higher rate on fixed-rate loans. For example, six to seven years ago, fixed-rate loans had interest rates of about 11.5%, while floating-rate loans had interest rates as low as 9.5%. Even if there is a fee associated with foreclosing a fixed-rate loan, it is advised that borrowers with fixed-rate debts convert to floating-rate loans—either from the same lender or from another one—as they might find the change advantageous.
Fixed-rate borrowers should switch to a floating-rate loan either with the same lender or with another lender, as they may find the shift beneficial despite paying a penalty on foreclosing a fixed-rate loan.
Floating-rate secured loan borrowers get great flexibility in making partial prepayments sans any penalty. They can use this to lower their EMIs. Any partial prepayment has a significant impact on your loan tenure as this amount is fully utilized towards bringing down the outstanding principal amount.
Conclusion:
The above five methods, if followed, can considerably lower your secured Loan EMI payment. If you are someone looking to transfer your running loan amount into some other bank but aren’t aware of the process, you can seek a solution from the fintech platform OneNDF – the leading loan marketplace in India.
OneNDF has established itself as the best financial solutions provider which does thorough research on secured loan rates of different banks to recommend the best affordable rates to its clients. Having served over 2000 customers and disbursed over Rs 3000 crore loans, the company has become a one-stop solution for all financial needs. The financial services provided by the company include balance transfer (BT), top-up, business loan, LAP, Overdraft limit, cash credit, Dropline OD, Invoice Discounting, Bill discounting, PO Financing, supply chain finance, and working capital.
