A personal loan often helps us in meeting our financial obligations such as marriage, education, medical treatment, etc. Available for up to INR 50 lakh and up to five years, it ensures customers fulfill their needs fully and feel comfortable repaying the loan every month till it wraps up. A seemingly large amount can have a much lower EMI, thereby allowing customers to meet the personal loan eligibility norms. But surprisingly, such low EMIs can make you pay more to the lender overall. What?? Such may have been your reaction to this, but it can be true in certain cases. Sometimes banks and NBFCs lend to people with a slightly low income at a greater personal loan interest rate.
To help such people pay their EMIs on time, lenders increase the tenure. But with that up goes the interest liability for such borrowers. One can switch off the outstanding loan balance to another lender at a lower rate and reduce their interest obligations. But some may not get approved for such a deal, which is called a personal loan balance transfer. Even then, certain things can be avoided when servicing a greater personal loan interest rate to save some. Let’s check what they are.
So, What to Avoid In Case the Personal Loan Interest Rate is High?
Before listing out the things to avoid, you should know the interest rate lenders offer to their borrowers. Personal loan interest rates can be as low as 10.35% and as high as 35% per annum. On average, the rates can range from 11-20% per annum. So, look to strike a deal within 11-15%. But in case the rate goes beyond 20%, you need to avoid certain expenses that you may do in normal cases.
First – Avoid Spending Too Much to Compensate for High Personal Loan Interest Rate
With a loan, the spending power automatically decreases to the extent of the EMI payable every month. So, if you were spending INR 30,000 a month previously, with a loan EMI of INR 10,000, you need to cut that to INR 20,000 or even less. And with interest rates being on the higher side, overspending will only invite late payment and the charges that come with the same.
And if the payment remains due for a month, the lender will report the same to credit bureaus such as CIBIL, thereby reducing your credit score. The trend, if continued for long, could reduce your score significantly and diminish your chances of getting a loan. So, do smart budgeting to avoid such outcomes.
Don’t Jump to Top-up Loan Without Any Thought
Sometimes your lender may agree to reduce your personal loan interest rate if you accept a top-up loan, which adds to the outstanding loan balance. The reduced rate will apply to the outstanding loan balance plus the top-up amount. But it’s important to check whether you need a top-up loan. After all, it’s a loan too and adds to your cost. In case you don’t need any such amount, avoid applying for the same. You will only save more.
Avoid Impulsive Credit Card Shopping
Credit cards offer you a series of discounts, rewards and cashback on your shopping. And by paying your bills fully and on time, you won’t have to pay interest. But too much shopping to gain all these could put you in a never-ending debt trap with the steepest interest rates of 30-45% per annum.
Yes, you can avoid late payment charges by paying only the minimum due accounting for nearly 5% of the outstanding credit card balance in a billing cycle. But it only worsens your case by raising your debt significantly.
With personal loan interest rates already accounting for much of your income, you cannot have one more debt at a high rate. Rationalize your credit card shopping and save enough to pay both your loan and card dues on time.