Tips to lower your EMIs in case of cash crunch

Job layoff, medical crisis or any unforeseen emergency tends to scuttle our budget. In this case, it can play havoc with our monthly installments of our loans. This can be particularly disastrous if the loan is home loan, as it can lead to loss of your home. So if you are in this situation, or credit card debt, which can easily spiral out of control; here are some tips to beat the cash crunch.

  • Sell off some of your assets.
  • Pay part amount of the total EMI to lower the interest due.
  • In case of a credit card debt, convert it into a personal loan due to its lower rate of interest.
  • Avail of loans against assets like FDs, gold and shares and property.
  • But if all these fail, the last option is to seek help from the debt counseling centers or approach the bank directly. Most banks are willing to help out customers in distress to recover at least a portion of their dues.

How to select the best EMI option for you?

We all know that when we take a loan, we have to pay it back in monthly installments, also called as equated monthly installments or EMIs. But do you know there are 2 types of EMIs? Are you aware about how to select the most suitable one for you? Well, here is what you need to know about EMIs

There are 2 types of EMIs: flat rate EMI and reducing balance EMI. In case of the flat rate EMI, the interest is charged on the total loan amount. The principal and the interest is spread over the entire tenure of the loan. The figure that is derived is your EMI. In case of reducing balance EMI, you pay the interest on the outstanding balance. This balance can be calculated on the daily basis, monthly basis or yearly basis.

Of these, flat rat EMI works out to be quite costly. This is because you pay the interest on the entire sum. As a result, even if you have managed to pay a part of the amount, you still have to pay the interest. Reducing balance method is cheaper as you pay interest only on the unpaid part of the loan. Ideally opt for daily reducing balance system or monthly reducing balance system.

Tips to better your credit score

Whether you are looking for a credit card or any type of loan, having a good credit score has become mandatory. You can get your credit score from CIBIL But what do you do if your credit score is poor? How do you improve it so that you can get credit easily?

  • Ask for you credit report annually. Go through it carefully. If you notice any discrepancies, get them rectified immediately by contacting the bank. Point out the discrepancy to the bank and ask them to notify the discrepancy to the CIBIL. However if the bank does not help you out, get in touch with banking ombudsman and CIBIL. Show them the proof that you have cleared your outstanding dues.
  • Pay your bills on time. Whether it is your credit card bill. Loan EMI or electricity and telephone bill, ensure you pay it on or before the due date. Use automatic payment facility like Bill Pay which will automatically debit the amount from your bank a couple of days before the due date. This is a sure shot way to enhance your credit score.
  • Make sensible use of credit cards. A credit card is a useful tool to help you enhance your credit score. Pay your bills in full by your due date. Don’t use the card up to the maximum credit limit. This shows that you can handle credit sensibly.
  • Keep your debts low. Even if you manage to pay all your debts on time, having debts far below your income will show you are responsible in managing your money.

 

Follow these tips and see your credit score improve.

How to save money by refinancing your home loan?

Rohit had taken a home loan from a bank for a period of 20 years. The rate of interest on the loan was 13%. When his friend told him that his bank was offering home loan at 11%, he decided to switch over to the new lender. This is called as refinancing the home loan.

Why refinance? For one, it reduces your EMIs. Lower EMIs means you save money. Also you have the option of changing from current high-interest floating rate to low-interest fixed rate. Lastly, your loan tenure will also decrease, thus enabling you to repay your loan faster.

How to refinance your home loan? Well, here are some steps that you need to follow to get your home loan refinanced.

  • Check your present home loan: Find out how much you are paying for your current home loan. Check the charges levied by your home loan lender.
  • Understand your need: Are you looking to refinance in order to save money? Do you want to speed up your repayment tenure?
  • Select the suitable refinance lender: Compare the offerings of various lenders available at various online loan comparison websites. Check the interest rate, terms and conditions and charges and fees of different lenders. Also check out the customer service of selected lender.
  • Give the lender an estimate of the value of your property: Show the lender estimated worth of your property and how it has increased over the time. The lender will take into account this value before approving your loan. You will also have to submit details of your income, expenses and other liabilities. This will help the lender decide the amount you are eligible for.
  • Start the closure procedure with your current lender: Once your loan is approved, start the closure procedure with your current lender. Your new lender will process your loan after receipt of valid documents.

Should you opt for personal loan?

There are many instances in our lives when we may experience sudden cash crunch. It could be due to sudden illness, job loss, death of the main earning member in the family. In such a situation, it is very easy for us to opt for a personal loan in order to tide over our crisis.

Why personal loan? This is because personal loan is easily available. There is no need to submit excess documentation as well as collateral. In certain cases, you can get the loan within 2 minutes on the telephone. Moreover unlike other loans, you are free to use the money for any purpose. You don’t have to declare your purpose to the bank.

But is it right for you? You need to ask this question because as the personal loan does not need any collateral, it becomes an unsecured loan. Any unsecured loan carries high rate of interest than a secured loan like car or home loan. This means EMIs in this case will be higher. You should be comfortable repaying the EMI, failing which you wil be labeled as a defaulter.

So what should do? If you are not able to pay the high EMIs, you can consider other options. Do you have an FD with a bank? If yes, then you can take a loan against FD, as its rate is slightly higher than the rate of FD. If you have shares, you can avail of loan against shares. Nowadays many banks also offer gold loans against your gold jewelry.

Why go for these loans? Simple, they are cheaper. Interest on any secured loan is cheaper than an unsecured loan. This will lower your EMIs and thus save you money.

Why Gold loan?

Looking for a loan with low rate of interest? Then opt for gold loan offered by banks against the gold jewelry. The bank uses your jewelry as collateral and will lend you money against it.

Why gold loan?

The interest rates charged on this loan are at least 5-8% cheaper than the personal loan. Also unlike a personal loan, a gold loan does not have any elaborate documentation so the loan processing time is shorter. Also you can avail of this loan even if your credit record is poor. You just have to show your income proof to avail of the loan.

Why avoid gold loan?

 

If you are taking a loan from a cooperative lender, then you must be a member of the bank. Also some smaller banks may not return your ornaments, so you stand to lose your jewelry. If you have taken a loan from a particular branch and defaulted on it, then the branch may not return your ornaments. So in this case, it is advisable to approach another branch of the same bank or another bank altogether.

Also the tenure of the gold loan will vary from bank to bank. In case of HDFC Bank, the tenure is annual while it is monthly in case of Mannapuram Finance. The benefit of of monthly tenure is that you can get higher amount with every rise in gold prices.

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