Student loans are financial aid offered by financial organizations as a support to students with their education. They may seem overwhelming to pay EMI for years to clear the entire amount. However, a student loan can be cleared easily and quickly if the right strategies are followed. Read through to learn more.
Automate payments and check for prepayment options. Sign up for automatic payments with the lender. Ensure to keep enough funds in the concerned bank account a week before the due date. Automation is always the best way to set dedicated money aside, without giving a second thought.
Use your windfalls wisely. Whenever, you receive handsome amount in the form of appraisal, bonus, incentives, etc, divert to clear the loan amount. It gives a good acceleration to pay off student loan very soon.
Pay more than minimum: To get over with your loan quickly, consider prepayment options or paying more than minimum. Paying extra makes a huge difference to the overall savings. Care should be taken that the borrower deducts extra payments from the capital rather than marking as future payments.
In one case, Deepak approached a bank for INR 7 lakh student loan. He got an approval for the same with 10 year loan-tenure at 11.5% interest rate with an EMI of INR 11648.54.
But he negotiated to contribute INR 1,000 every month towards the principal amount. Then, the EMI came down to INR 9778.11.
Thus, he not just saved INR 1870 every month on EMI but could repay the entire loan in 101 months (19 month earlier).
Look to refinance the loan and reduce interest rate. Refinancing is another good way to reduce the interest rate as well the loan tenure. A few years after the graduation, many become eligible for refinancing as they become financially stable with steady employment.
In one case, Deepa availed INR 7 lakh student loan with 10 year (120 months) loan-tenure at 11.5% interest rate with an EMI of INR 11648.54. She paid the EMIs for three years, after which she opted to refinance. The refinance loan came with 10.5% interest rate, i.e. 1% less than the previous rate of interest, which helped her save 4 month EMI, as she finished the total loan payment in 116 months. This clearly explains, how 1% reduced interest rate could save thousands of rupees.
In conclusion, every simple step you and simple effort you put towards clearing your student loan would help you clear our student loan sooner than you imagine. Focus on your progress and move with a vision. Appreciate small wins (contributions) to stay positive in reaching a debt-free future.