5 Ways You Can Save Money With Personal Loans

Anuj Kacker_COO & Co founder MoneyTap

Personal loans are safety-free, large-volume loans taken out by individuals through moneylending institutions such as banks and NBFCs. These loans are granted based on factors such as income level, loan history, repayment ability, etc. Individuals applying for personal loans must have a credible credit rating in order for them to be easily approved.

Anuj Käcker
Anuj Kacker_COO & Co founder MoneyTap

A personal loan is unsecured in the sense that it is not secured against any collateral. Because of this, the interest rates on personal loans are typically higher than those on home or car loans.

While this may compare to loans that involve large sums of money or collateralized assets, the interest rates on personal loans are usually lower than those on credit card borrowed funds. And while personal loans can help you meet unexpected expenses or other needs, they can also help you save money.

Below are some of the possibilities:

  1. Lower interest rates

As mentioned earlier, the interest rates on personal loans are lower than those on most credit cards. Hence, personal loans can be used as a money-saving strategy for shopping instead of credit cards.

  1. Debt consolidation

You can get a large, low-interest personal loan to pay off your other high-interest debts. Such a debt consolidation can save you money on a high-interest student loan or your credit card statement, for example, by repaying it faster or immediately with a personal loan. However, be sure to check with your bank about their prepayment policies, as some credit institutions impose penalties for not completing the life of a loan or additional foreclosure fees.

  1. Obtaining tax benefits

While personal loans generally do not give you any tax breaks, if they are taken out for the purpose of renovating your home or paying a deposit for it, you can claim a tax deduction of up to INR. 2 lakhs under Section 24B. In order to benefit from this benefit, you must provide proper receipts and documents to the lending bank.

  1. Smart repayment plans to increase savings

Before taking private loan, depending on your current and prospective financial status, you can choose the most suitable amortization schedule to increase your savings. Anyone who expects their financial situation to improve in the near future, for example due to a grant, can apply for the step-up repayment option. This EMI program starts with low interest rates that gradually increase over time.

Another option, as described above, is prepayment. By having your loan foreclosed, you can save on interest payments. However, it is important to check beforehand that this option does not come with a penalty.

  1. Credit improvement

Taking out personal loans can diversify your credit type, which in turn improves your credit score. And if you maintain a good credit score, you can avail of several benefits.

On the one hand, it increases your chances of getting your loan approved and you can also take out a larger loan based on your credit rating. If you’re looking to save money, you can take advantage of a good credit score to negotiate a lower interest rate on your loan or get exemption from processing fees, etc.

The views expressed in this article are the personal views of Anuj Kacker, Coo and Co-founder of MoneyTap

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