Saturday, 22 January 2011

Various methods to repay your loan amount

All we need money to survive and we find such money from our daily work or business. But sometimes we need more money for any particular purposes such as Marriage of self or children, buying a house, to start a business etc. etc. Normally what we do in such circumstances. We have to borrow that money if we don’t have enough money to meet the desired purpose. We can borrow from our relatives or friends if they have money or we have to approach any financial institution to get a loan. We know that we can avail so many types of loans as per our requirements and the amount of money we need. It may be easy to fulfill our desired goal with the loan amount. But the problem starts when we repay the loan amount. Sometimes we won’t have enough money to repay the installments. You might not be aware that a single default in repayment of loan may affect your credit report and the availability of loan in future. In such a situation we have to make it convenient our loan repayment. Here you can read different methods of repayment of a loan amount.

Equated Monthly Installments (EMI)

Normally almost all loans are repaying with EMIs (Equated Monthly Installments). It may also be called Equal Monthly Installments. It allows you to repay fixed monthly installments for a fixed period of time. Even if you are paying equal installments the amount you are paying in two parts. One is interest part and the other is principal amount repayment. In first few installments the interest part will be higher and the principal amount repayment will be less. And afterwards the principal part will be more than interest part. This method is convenient when you are a salaried employee or you have a fixed regular source of income. Only an equal amount should be paid all months till the loan fully reimbursed.

Flexible repayment method

This is another type of repayment method for a loan amount and in this option you can choose the repayment as per your own decision and convenience. As per your income you can arrange this payment and it will not give you much burden to repay your loan. Here are some important methods of flexible repayment methods.

Increasing EMI method

This reimbursement option allows you to start with a small EMI and when you get any other regular source of income or a promotion or increment you can increase the EMI amount and can reduce the number of installments. This method allows you to reduce the burden of repayment and also reduce the total interest payable for the loan. You can finish the loan earlier as you expected.

Step up loan repayment option.

In this type or repayment method the installments will be lesser at the beginning and the amount of installments will be increasing, installment after installment or year after year. This type of repayment method is convenient for the beginners of work or business and when they get more experienced in work or more improved in business the installments also will be increasing and they can easily repays the loan with their increasing income. The advantages of this type of loan repayment method are that the financial institution can allow a higher amount of loan than the amount can be allowed at the present situation of the borrower. They can consider the experience or improvement of the borrower.

Step down loan repayment option.

Step down repayment option is just opposite of the step up repayment option. The installment amount will be decreasing installment after installment or year after year. This is suitable for a person who is near to his retirement and when he is at work and getting a good salary he can pay a high amount and when he retire and getting pension which is always lesser than the salary and he could pay less amount of installments. This method is convenient to the financial institution to grant loan for a person who is near to his retirement.

Balloon repayment option

This can consider as a step up option, but in this option you could pay a very small amount of installments in the beginning and when the time goes up the installment amount also ballooning to a high amount than the normal step up option.

Onetime payment option

In this type of repayment option, the repayment is in a lump sum as per the convenience of the borrower, but within a stipulated time period. This type of loan repayment is normally seen in gold loan or other secured loan. But normally financial institutions does not prefer this scheme of repayment by the fear that the repayment may not be done. But as per the collateral security we have given, they may allow such type of repayment also. In this option the borrower can repay the interest portion time to time or can repay interest and loan amount in a lump sum.

You can choose anyone of the above mentioned repayment method as per your convenience and also as per the terms and condition of the financial institution. But we always advice that go for a loan only if it is an unavoidable circumstances and repay the loan as soon as possible.

Related Posts
Tax Treatment of Housing Loan While caliming HRA Exemption
As you are aware that you can get Income tax exemption for the amount repaid for home loan. But it is interesting and useful to know some facts about it. You can claim Income Tax Exemption up to Rs. 150000 … Continue reading ?

Online Loan Application and Loan Comparison
Most of us require loan at any stage of life such as purchase a house, for higher studies or ourselves and our children, marriage of children or any emergencies.In this internet era nobody has enough time to compare various loan … Continue reading ?

Loan Insurance or Loan Protection Insurance
You may be aware of loan insurance or loan protection insurance. An insurance which will take care of paying your loan when you become unemployed or met with an accident or due to sickness so that you could not earn … Continue reading ?

Reduce your Loan and Increase investments
What would you do if you get more salary? I mean a salary hike. You may think to purchase a new household item, a car or any luxury items etc. Recently I heard a speech that Indians are living for … Continue reading ?

No comments :

Post a Comment