Loans have become a part of almost every individual’s financial journey. Whether it’s a personal loan, home loan, business loan, loan against property, or even a used car loan, borrowing money often becomes essential to achieve our goals. However, the repayment of loans—especially when spread over several years—can feel overwhelming.
The good news is that with the right strategies, you can repay your loan faster, reduce your financial burden, and save a significant amount on interest. In this blog, we’ll share practical, actionable tips that can help you clear your debts early and regain financial freedom.
Why Should You Repay Your Loan Faster?
Before we move into the tips, let’s understand why repaying your loan quickly is beneficial:
- Saves Interest: The longer you stretch your loan tenure, the more interest you end up paying. Early repayment reduces this.
- Improves Credit Score: A strong repayment history boosts your credit score, helping you qualify for better loans in the future.
- Reduces Stress: Debt can be mentally exhausting. Repaying faster gives you peace of mind.
- Financial Freedom: You’ll have more disposable income for investments and future goals.
Proven Tips to Repay Your Loan Faster and Save on Interest
1. Pay More Than the Minimum EMI
Most borrowers stick to paying only the fixed Equated Monthly Installment (EMI). But did you know that paying just a little extra each month can help you close your loan years earlier?
For example:
- Suppose your EMI is ₹15,000 per month.
- If you pay ₹2,000 extra every month, you could save lakhs in interest over the full tenure.
Tip: Whenever you get a bonus, salary hike, or extra income, direct a part of it toward your loan repayment.
2. Opt for a Shorter Loan Tenure
When taking a loan, lenders often give the option of choosing between long tenure with smaller EMIs or short tenure with higher EMIs.
While longer tenure seems comfortable, it increases your total interest burden. A shorter tenure may require higher EMIs, but you’ll pay off the loan faster and save money in the long run.
Example:
- Loan amount: ₹10 lakh at 10% interest
- Tenure 10 years → EMI ₹13,215 → Interest Paid: ₹5.85 lakh
- Tenure 5 years → EMI ₹21,247 → Interest Paid: ₹2.74 lakh
You save ₹3.11 lakh by choosing the shorter tenure.
3. Make Part-Payments Whenever Possible
Most banks and financial institutions allow part-prepayment or part-payment of your loan. This means you can pay a lump sum amount (other than your EMI) toward the principal.
Benefits of part-prepayment:
- Reduces the outstanding principal
- Lowers future EMIs or shortens the loan tenure
- Helps save interest significantly
Tip: Use tax refunds, incentives, or business profits for making part-payments. Even small amounts regularly can make a huge difference.
4. Increase Your EMI with Every Salary Hike
If your income is growing every year, don’t just increase your lifestyle expenses—consider increasing your EMI too.
Many lenders allow you to revise your EMI amount. Increasing your EMI by even 5-10% every year helps you clear your loan much faster.
Example:
- Current EMI: ₹20,000
- After a salary hike, you increase EMI to ₹22,000
- This additional ₹2,000 monthly reduces your loan tenure by months or even years.
5. Refinance or Transfer Your Loan
If you’re paying a high-interest loan, consider a loan balance transfer to another bank or financial institution offering lower interest rates.
For example:
- Current personal loan interest rate: 14%
- New lender offering: 10%
- On a ₹5 lakh loan, this switch could save you thousands of rupees in interest.
Tip: Always check processing fees, foreclosure charges, and hidden costs before opting for refinancing.
6. Use Windfalls Wisely
Got a bonus? Received an inheritance? Business made unexpected profits? Instead of splurging, use these windfalls to reduce your loan burden.
Lump sum payments made early in the loan tenure have the highest impact on reducing interest since interest is calculated on the outstanding principal.
7. Avoid Taking Multiple Loans at the Same Time
Many people fall into a debt trap by taking multiple loans simultaneously—like a personal loan, car loan, and credit card debt. Managing all these EMIs becomes difficult and increases financial stress.
Tip: Focus on repaying existing loans before committing to new ones. This way, you’ll clear debts faster and save interest.
8. Switch to Bi-Weekly Payments
Instead of paying your EMI once a month, you can split it into two smaller payments every two weeks (if your lender allows).
This approach leads to 26 payments a year instead of 12, which reduces the principal faster and saves interest.
9. Automate Your EMI Payments
Missed or delayed EMIs not only attract penalties but also damage your credit score. Automating your EMI ensures timely payments, helping you stay on track to close the loan earlier.
10. Reduce Unnecessary Expenses
Cutting down on lifestyle expenses like dining out, shopping, or vacations for a short while can free up extra money. Directing this money toward loan repayment ensures faster closure and lower interest.
Remember: A few sacrifices today can give you a debt-free tomorrow.
11. Consider a Debt Consolidation Loan
If you have multiple loans (personal loan, credit card debt, etc.), you can take a debt consolidation loan. This merges all debts into one loan at a lower interest rate.
This not only reduces your interest outflow but also makes repayment simpler.
12. Stay Informed About Your Loan
Many borrowers sign loan agreements without fully reading the terms. Stay updated about:
- Prepayment penalties
- Interest rate changes (for floating loans)
- Special schemes offered by lenders
Being aware of these details helps you take advantage of opportunities to repay faster.
Example Calculation: Saving Interest with Prepayment
Imagine you take a ₹10 lakh loan at 10% for 10 years.
- Normal EMI: ₹13,215 → Total Interest: ₹5.85 lakh
- If you prepay ₹1 lakh in the 2nd year:
- Loan closes in 8.5 years instead of 10 years
- Interest saved: ₹90,000 approx
This shows how even a single prepayment can save big on interest.
Frequently Asked Questions (FAQs)
Q1. Is it good to prepay a loan early?
Yes. The earlier you prepay, the more you save on interest. Always check if your lender charges prepayment penalties.
Q2. Which loan should I repay first?
Focus on high-interest loans like personal loans or credit card debt before others.
Q3. Will repaying my loan early improve my credit score?
Yes. Timely or early repayment shows strong creditworthiness, which boosts your credit score.
Q4. Can I reduce my EMI instead of tenure after part-payment?
Yes, but reducing tenure saves more interest than lowering EMI.
Final Thoughts
Loans can be a great support system to achieve dreams like buying a home, funding a business, or handling urgent needs. However, being stuck with EMIs for years can slow down your financial growth.
By applying the tips shared above—making extra payments, opting for shorter tenures, using windfalls, refinancing, and avoiding multiple debts—you can repay your loan faster and save a huge amount on interest.
At Wealth Crafts Solution, we help individuals and businesses find the right personal loans, home loans, business loans, loans against property, used car loans, and insurance solutions. Our goal is to not only provide loans but also to guide you in managing them wisely for long-term financial well-being.