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Tips to deal with increasing EMI

By SiliconIndia | Tuesday, 19 July 2011, 04:39 Hrs

Bangalore: Over the year the interest rates have increased keeping the loan takers in a fixed state. This gets very strenuous for those battling with rising EMI, extended loan tenures and higher interest while meeting their regular expenses when inflation is around. Is the increasing EMI a burden for you?

Given below are different ways to tackle the increasing EMI:

Increase your EMI and not tenor: When you increase the tenor of the loan the interest payout increases thereby making the loan more expensive. Consider the case where the loan amount is

50 Lakh and the tenor is 15 years. The EMI works upto

53,730 at 10 percent. If the interest rates increase to 11 percent after a year the EMI will change to

56,681 for 14 years. But if you increase the tenor by another six years to 20 years the EMI will fall to

50,045 at 11 percent interest rate. Rescheduling is applicable for home loans, education loans, car loans and personal loans.

Get a better deal: Try to avail a better deal from the lender in case of interest rates. This works for credit card debt but you can convince your bank and negotiate with them to modify rates for loans.

Switch loan to another lender: The best option is to switch loan to another lender at a lower interest rate. Thereby the EMI will reduce on a lower rate. During this process consider the total cost of the loan including the prepayment penalty to the existing lender and processing charges to the new lender.

Increasing the EMI by 5 percent: When there is a hike in salary by 5 or 10 percent, you can use this to reduce the loan burden. But some banks don't allow the customer to increase the EMI, in such a situation you can take the difference of the increased Emi and original EMI and put it in a monthly recurring deposit. This money can be used to make a pre payment at the end of the year.

Foreclosure of loan: One of the best option to deal with increasing EMI is foreclosure of loan.But before you decide to foreclose your loan make sure you weigh the pros and cons. While foreclosure can stop the hassle of an EMI, it can also take away your tax benefits. So think which is the best option for you before you decide

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