Personal Loan Tips to Pay Off Your Debt Early - Personal Loan Blog - Tata Capital

Personal Loan Tips to Pay Off Your Debt Early

Feb 28, 2017

Meet Ajay, a technology developer. He got promoted recently, has a great family and loves his job. There was just one problem that Ajay faced: Monthly EMIs on his home renovation personal loan and his wedding loan.

Ajay felt his relationship with his loans was similar to having a stubborn girlfriend: it just wouldn't take NO for an answer. Just like how you do not want to be late for a date because it'll cost you, a missed or delayed EMI payment cost Ajay greatly. Ajay wanted to get out of this commitment. He cribbed and cribbed to his friends and left passive aggressive messages on social media, to no avail. Finally, his friend offered a truly brilliant solution.

He told Ajay to pre-pay his loan, and you can do that too!

Though not all personal loans allow you to make the payment before the set date, it's definitely worth enquiring after. Here's why you should pay off your personal loan early:

1. More money in hand

Ajay never got to make use of his full salary of Rs. 75,000; a part of it was always locked up in loan repayments. This happens with a lot of people because a substantial amount of their salary is often locked away in EMIs. Unlike your investments, your EMI money is fixed. In Ajay's case, this amounted to Rs. 25,000. That is money he cannot touch until he pays off his loan. Now, if he paid off his loans in advance by using his bonuses and other sources of extra money, he could reduce his loan's tenure. This means he'd have many EMI-free months, when he could easily use the Rs. 25,000 money too.

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2. Credit rating and future borrowings

When you settle a loan early, it says good things about your debt-repaying capacity. There's a good chance your credit score may improve. After all, which bank does not like customers that pay their dues? An improved credit rating may mean that you can borrow more in the future because the bank/NBFC trusts you. Don't let your personal loan be the "ex" that stands between you and your dream!

But is breaking up once and for all with your personal loan a practical idea? Yes.

Here's how you can pay off your debt early:

1. Pay off loans that cost you more first

Ajay's wedding loan came at the cost of 12% interest while his home renovations loan attracted an interest of 10%. Not to mention, the wedding loan was worth more-Rs.7 lakhs-while he borrowed Rs.3 lakhs for renovations. This means he was not only paying a higher EMI for the wedding loan (Rs. 23,250), but also a high amount as interest (Rs.1.37 lakh). The EMI for his other loan only amount to Rs. 9,680. Plus, the total interest amount payable to was paltry in comparison-just Rs. 48,486. If he regularly paid off his wedding loan in big chunks, he could reduce the total interest he pays. Plus, he could decrease his loan tenure too. In this situation, it is wise to pay off the wedding loan first.

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2. Adjust your repayments according to your income

Many people make the same repayment on their loans irrespective of their salary hikes. While Ajay's income increased with his promotion, he never increased his EMI. With his promotion in hand, Ajay received almost Rs. 20,000 extra every month. However, he still pays the same minimum amount on his EMI's. It never occurred to him to increase the EMI payment so that his loans end sooner. If he paid even Rs.10,000 extra every month, he could pay off his wedding loan almost a year in advance! So, to pay your loan faster, make it a habit to increase your repayment every time your income increases.

3. Make smart payments

Though Ajay thought his loan repayment was a fixed amount. His friend suggested that every time he received extra money like a bonus received at work; a return on an investment or even a gift, he could use that to pay off debt. You can inculcate such discipline too.

Yes, this may be difficult. But remember that while breaking up a bad relationship can be painful, you would breathe so much easier after that.

4. Re-structure your finances

Ajay lives in an own house and the best way for him to take a loan would be if he took it against his house. This is because secured loans are cheaper than personal loans. This means that if you take a loan against a collateral or investment, you would pay less interest than on a personal loan.

Ajay can use his house to take a secured loan and pay off his personal loans by restricting his finances. This way, he reduces his cost of borrowing.


If Ajay paid off his loans, he would have a debt-free future. Plus, he will have the opportunity to make other purchases, borrow more to finance his dreams.

Like Ajay, paying off your personal loan can be the best thing for you! Breakup with your loan and don't hold on to a relationship that is not working out anymore.