Haunted by EMIs? Here's how you can reduce Home, Personal, Auto loan monthly instalments

The benefit of recent repo rate cut by the Reserve Bank of India (RBI) is unlikely to be passed on to the borrowers by commercial banks soon. If you are looking for relief on Home, Personal or Auto loan EMI from banks, the wait may be longer. The repo rate cut by RBI doesn't automatically reduce the loan EMIs as the banks tend not to change while modifying the tenure of the loan. In other words, when the repo rate comes down, the tenure of the loan get reduced. Similarly, the tenure goes up when the key lending rate is reduced. 

Repo rate is the rate at which RBI lends to commercial banks. 

So if you want to reduce the EMIs, you need to look out for other options. To adjust EMIs to the changed interest rates, you need to take up the matter with your bank. There are also several tools to reduce EMI. Take a look at some of them: 

Partial pre-payment

You can reduce the EMI by making partial pre-payment on the principal amount. This helps reduce the EMI as well as the overall interest amount. However, you should check factors like pre-payment limit, penalty,  charges imposed by banks.  Some lenders only allow full pre-payment while some others discourage part-prepayment. Some banks even charge for pre-payment on loans.

Prepayment can be done with any additional income, including bonus, gifts, income from other investments and sale of a property. 

Prepayment penalties vary from one lender to another. These are charged either at a flat rate or at a certain number of month's interest, says HDFC Bank's official website. The private lender advises the loan owners to compare the penalty with the overall amount he/she will save in terms of interest. It further says that to get the best from prepayment facility, the borrower should carefully read the contract or talk to the bank at length. 

HDFC Bank warns against presuming that the interest component will become low after having paid a substantial number of EMIs. It says, "When considering prepayment, borrowers should hence consider the prevailing interest rate, rather than the loan tenure."

Balance transfer

Banks give the option of transferring home or personal loans to cheaper interest rates on offer. This benefits the borrower when there is a good difference between the interest rate of the other bank and the interest rate of the first lender. 

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While calculating the home loan, you should check whether your total expenditure will be more than the saving or not. Generally, a home loan transfer becomes beneficial when the loan tenure is of over 10 years or the new interest rate is 1% lesser than the previous rate. SBI allows eligible customers to transfer the home loan from other lenders.

Increase loan tenure

A borrower can request the bank to increase the loan tenure if he/she is facing financial troubles. Generally, banks offer this facility to borrowers. The EMI amount decreases when the tenure goes up.