How to Repay a loan quickly how to repay a loan of 25 years in tenure injust 10 years
To start with let’s take a situation if you have a home loan or for that matter any Loan, then the payment of the EMI every month is a lot of burden. So today we will share with you How to repay a Loan with whatever your loan Tenure maybe it can be 10 years or it may be 25 years for a Usual Home Loan.
How can you reduce a Loan tenure from 25 Years to 10 years without any financial risk and financial pressure.
Things Must Know to Repay a Loan?
It May Sound Weird but there is a very simple technique and a disciplined way to do it in this way will try to learn three things
Number 1. The EMI which we pay every month – What is the structure of EMI? How does EMI Pay our Loan? How much amount of our EMI goes for payment of Principal & Intrest?
Number 2. How does tenure of EMI affect the loan and How can we pay off the loan through the monthly EMI? How does interest keep on accumulating and to what limit?
Number 3. What is the way to reduce your loan duration? What are the strategies that we can use to reduce the Loan Tenure without taking a lot of pressure on ourselves but in a disciplined manner.
First of all, Starting with EMI, let’s say a person has a loan of 10 Lac Rs. if EMI on that amount is 15000 Rs. then we feel that 7500 Rs. or 50%, will go towards Payment of the loan, and the remaining 7500 rs. will be deducted as interest on the Loan.
But that’s actually not true initially when you begin paying the EMI to tell the majority of the EMI goes towards payment of interest this is How the EMI and the Bank Loan Work.
This is the first thing one needs to Understand because this change the entire equation We think that the loan is being paid off at quite a fast pace but in reality it’s not, we are only paying the interest.
let’s take a look at an example to Repay a Loan
Now in the Above Image, We can see there is a loan amount which is 40 lakh and the Rate of Interest is 8%, and the tenure you 25 years.
Now when you consider these 3 parameters
The monthly EMI will be around 30873 Rs., Principal amount paid is 40,00,000 Rs. and the Interest paid is 52,00,458 Rs.
Now in this scenario, we can analyze that the effective amount paid to the bank by the end of the Loan Tenure that is after 25 years is 92,00,448 Rs. which is more than twice the Principal Amount.
This is why the first thing that one can possibly do is to reduce the tenure of the Loan at the Very Initial Stage itself.
Now considering this Same situation, Which we took Previously, Considering the same loan with a duration is of 25 years (In every individual’s case the duration may vary) now if we reduce the Loan duration by 10 years that is 25 years to 15 years.
Reducing Tenure to Repay a Loan
We can see that the EMI is 38226 Rs. and the Interest paid is 28,35,127 Rs. and the Principal Amount is 40,00,000 Rs.
This means in 15 years an Individual Pays 68,35,127 Rs. now just see the difference in EMI Which is just increased by 8000 Rs. You save 14 lakh.
Now in the image below, you can see there is a detailed description of how the loan is been getting paid off on a monthly basis To understand the Repayment of the Loan
let’s take the same example in which the principal amount is 40,00,000 and the tenure is 25 years in month 1 the EMI is 30873 rupees and the loan paid (Principal Paid) is 4206 Rs. and the interest paid is 26667 Rs. and the outstanding loan amount is 39,95,794 Rs.
Similarly followed by Month 2 the amount towards loan payment is 4234 Rs. and towards interest is 26639 Rs. and the outside 39,91,560 Rs.
Now at the end of the first year the total EMI cost one has paid is 3,70,000 Rs. and the Loan amount paid is only 52,000 Rs. this is the main pain because in the starting all of your money is going towards the interest payment.
If you continue carrying on paying down the life for years let’s go to the 20th year (240th month) down the line now the EMI here is the same 30,873 Rs. and the amount paid for the loan is 20,585 Rs. and the Amount towards the interest is 10,288 Rs. and still you have 15,22,591 Rs.
The outstanding loan amount as you can see when you keep paying off the loan gradually the amount towards the loan increase and the amount towards the interest decrease.
To explain it, check out the graph if you see this graph the bar with Orange is the payment for the interest and the one in blue is for the payment of the Loan.
So initially the payment for the interest is high and the principal amount is low and as we move forward gradually the interest payment Goes Down And the payment for the principal loan goes high.
In this case, after 200 months the graph reaches its intersection.
Which is approximately 16 years and 7 months later you start paying more for the principal and less for the interest this is how striking it is.
Now take another example of a Loan, an Individual buys a car of amount 6 lakh at the rate of interest of 10% and tell your of 3 years in this scenario, He pays EMI of 19,360 Rs. at the principal amount paid of 6 lakh and the interest paid is off 91,211 rupees
In this scenario also you can clearly see that EMI of Rupees 19360 Rs. is been divided into two parts 14,360 Rs. goes in the payment of a Loan and 5000 is been paid for the interest this is because here the tenure is low.
But if you increase this tenure to 20 years then the situation will be completely opposite if you take a loan for 20 years the EMI paid will be 5790 rupees of which 790 rupees only will be deducted for the loan or principal amount and the rest 5000 will be diverted towards the payment of interest.
So the first lesson from this is if you have a loan of any amount at x rate of interest for n numbers of years then make it as much as possible to pay as higher as you can and take the loan for a minimum of 10 years.
Because this way your interest amount over a period of load will get reduced and will help you in Repay of Loan.
Types of loan repayment methods to Repay a Loan of 25 years in 10 years
Now let’s come to step Two, How can you reduce the loan from 25 years to 10 years now you have to focus on two important aspects
1. Pay extra EMI every year and
2. Increase the EMI by a certain percentage every year.
Now let’s understand this because you are working and you are paying your EMI through that so you might be getting some bonus or you may get some promotion or you will also get increment.
Or By selling something you have generated some amount or you may have some FD which is been matured or you got any lump sum amount in that matter.
Now consider in a very disciplined manner that you will pay an extra EMI every year now here your EMI is 31000 already but at the end of every year that is after the 12th 24th 36th Month and so on You pay one extra EMI.
Let’s see the results because of this what difference it causes if you pay extra EMI at the end of every year then the intrest paid by you originally is 52,61,795 Rs. which got reduced to 39,79,216 Rs. in this case you save 12 lacs.
Because you have now started preparing your loan earlier so what you are paying is that the entire 31000 rupees will go towards my Principal amount and reduce the loan.
Why does it add a value because your principal amount doesn’t get reduced initially from the EMI that you are paying as you discuss initially only 4700 of your EMI is been used for the payment of your principal amount but if you pay 31000 in one go it is almost like paying entire years principal EMI in one go.
This is awesome and this is how you make it happen as we could have now the tenure of the loan which was supposed to be of 300 months been drastically reduced to 239 months now the 25 years of the loan is reduced by 5 years just by paying when extra EMI every year
Now consider you are paying 2 EMI every year then the amount of 52 lakh gets reduced to 32,30,372 rupees
And the loan tenure is been reduced by 100 months from the loan of 25 years just by paying 2 EMI every year the loan is been paid within 16 years
Now let’s suppose you are unable to pay this extra second option increasing EMI by a certain percent every year
Considering you are and working employee and there is a certain amount of hike every year in your salary now you decide to increase the EMI by a certain percent every year now you can easily do this just by going to a bank and Requesting them about the increase in EMI by a certain percent every year and reducing the tenure of the loan.
Let’s start with 5% if you increase your EMI by 5% every year which is also an inflation rate then the difference is very massive the amount from 52 lakh is been reduced to 29,74,245 Rupees you will save 22 lakh rupees just by increasing the EMI by 5% every year and the loan will end at 163 month which is 13 year six month which was original of 25 years.
Similarly if you increased by 10% every year then you will pay the interest of only 23918 rupees and the EMI will increase by around 3 to 4000 every year and your loan will be cleared in 125 months which is 10 years 5 months which was of 25 years only because you kept increasing your EMI by 10% every year
Now on practical grounds let’s consider you pay extra EMI every year and you increase your EMI by 5% every year which is not a huge struggle and doable.
Now we can see that Loan of 40 lakh at 8% for 25 years it will be done by 150th month itself which is 12 years and 6 months and even if you increase the Principal amount from 40 lakhs to 1 crore the loan will be completely paid in same 150th month
In this case, the loan amount does not matter
And you will save at least 50% of the interest which you are paying earlier this is the power of maths and power of the payment if you can do this with dedication and with discipline then you can face any loan you can do the same thing for your education loan or car loan personal loan or etc & Repay a Loan before the Tenure
Can We Repay a Loan of 25 Years in 10 Years?
Yes, One can Do so By simply Paying Two Extra EMI Every Year and Increasing the Rate of Intrest by 8% and the loan of 25 Years will be Completely Paid in 10 Years
What are the Best Ways To Repay a Loan Quickly?
There are two ways to Repay a Loan Quickly
1. Pay extra EMI every year and
2. Increase the EMI by a certain percentage every year.
Repay of Loan Graph?
Repay of Loan Graph shows The amount towards Repayment of Principal and the Amount to Repayment of Intrest