One of the main disadvantages of a longer loan tenure is that it can result in paying more in interest over time.
Home loan repayment tenures have become longer owing to repo rate hikes in the last one year, and for many borrowers they have now even stretched beyond their retirement age. Many borrowers are reeling under acute pressure owing to longer tenure of their loans after the announcements of back-to-back hikes in the interest rates.
One of the main disadvantages of a longer loan tenure is that it can result in paying more in interest over time. This can ultimately lead to a higher total cost of the loan. If you have a long-term loan, it can limit your ability to make other financial decisions and investments.
While managing a longer tenure loan is challenging, here are some steps you can take to make it more manageable:
Review your financial situation: Check your finances to determine how much extra money you have each month to pay off your loan.
Negotiate with the lender: Talk to your lender and see if they can restructure your loan or offer you a lower interest rate.
Partial payment of a loan: You can make a partial payment towards the outstanding principal amount of the loan. This can be done at any point during the loan tenure, and can help you reduce your debt burden. There are some advantages to making partial payments on your loan.
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First, it can help you reduce the total amount of interest you pay over time. Second, making partial payments can help you to pay off the loan faster. Adhil Shetty, CEO, Bankbazaar.com, says, “If you pay 5% of the loan balance every year, you can pay off your 20-year loan in 12 years. Prepaying one additional EMI every year can close your loan in just 17 years, and if you increase your EMI by 5% every year, you can finish your loan in less than 13 years.”
Look for additional income sources: Consider getting a part-time job or starting a side business to increase your income. You can use this additional income to pay off your loan.
Prioritise your expenses: Make a list of your expenses and prioritise them. Cut back on unnecessary expenses and focus on paying off your loan. You can avoid going out for food too often, buying non-essential items, etc.
Use your retirement savings: Consider using your retirement savings to pay off your loan. However, this should be done as the last resort.
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Seek financial advice: Consult a financial advisor to help you make informed decisions about your loan and retirement.
Refinance your loan: Refinancing your loan may help you get a lower interest rate and reduce your monthly payments. Refinancing involves replacing your current loan with a new loan that has different terms and conditions, usually with the goal of obtaining a lower interest rate, reducing monthly payments, or changing the loan’s duration.
Consolidate your debt: Consider consolidating your debt to make it easier to manage your payments. If you have multiple loans, you must close your loans and focus on only serving one big loan rather than paying EMIs for several loans separately.
Sell some of your assets: Consider selling assets such as a second home or a car to pay off your loan. This can help you reduce your monthly expenses and make it easier to manage your finances.
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Debt Burden
- Back-to-back hikes in interest rates have led to longer repayment tenures for home loans
- Using your retirement savings to pay off your loan should only be done as the last resort
- Refinancing your loan may help you get a lower interest rate and reduce your monthly payments
