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Unveil strategies where personal loans can help you save money by consolidating debts and reducing interest payments.

Can Personal Loans Help You Save Money? Here are the five ways to save money!

One of the most widely availed loans in India is the Personal Loan. Personal Loans are collateral-free loans bought by borrowers through banks and other financial institutions. It is a handy instrument in tackling both sudden and planned expenses. They are a convenient option to take care of your needs instead of depleting your savings.

Personal Loans are provided by the financial institutions through digital processing these days and the applications are quickly processed. In order to sanction the loan, the lenders take into a few factors like the borrower’s credit score, employment, credit history, monthly salary and a few other parameters to check the borrowers’ repaying ability. Unlike other forms of loans, personal loans are issued without any collateral. It is sanctioned only based on the individuals who follow responsible credit behavior. Since, there is no collateral asked, the interest rates on Personal loans are high compared to other forms of loans. Personal loans are preferred by many these days, because they are less expensive than credit cards. While it is true that personal loan can help you tackle many of the expenses, it also helps in saving a lot of money. Mentioned below are the five ways through which a personal loan saves you considerable chunk of money

1. Lower Interest rates

As mentioned, the interest rates on personal loan are significantly lower than credit cards. Therefore, if you are planning a purchase, it is wiser to opt for a personal loan than credit card or borrowing from loan sharks

2. Consolidation of debts

You can borrow a large and low-interest personal loan to finish your other loans that have higher interests. For example, if you have a student loan running, you may be unnecessarily shelling more on interest; in this case you can save a lot of interest by availing a personal loan and using the funds to pre-close the student loan. You need to check with the banks about the repayment terms and charges associated with it. By consolidating debts like this for other loans and credit card bills, you can save a lot of money

3. Tax Benefits

While personal loans do not come with any tax benefits in general, however, when it is taken for the purpose of house renovation or during instances where you use it to pay a down payment, you can claim tax deduction up to Rs. 2 Lakhs under Section24B of the Income tax act. Make sure you produce proper receipts and documents to the lender

4. Repayment plans

Before opting for a personal loan, you may want to choose the one with proper repayment plan depending on your current and foreseeable financial status. If you see yourself getting a lump sum through some ways, you can opt for a loan with step-up repayment option. By opting for this, you can start your repayment with lower interest that gradually increases with tenure.

Another option is foreclosure or prepayment. By foreclosing your loan, you can significantly save more on interests. But it is important to check the fees associated with it with the concerned bank

5. Credit Score

If you get to complete your loan with a clean repayment record, then it will increase your credit score. By maintaining a good credit score, you can become eligible for multiple loan types and credit cards. Also, you can get the loan at favourable terms with a lower interest rates and lower processing fees. You can always track your credit score for free at Fincover.com, India’s fastest growing Loan aggregator site

Conclusion

The key to using personal loans to save money is understand the total cost of the loan and making a plan to pay it off as quickly as possible. When used judiciously, a personal loan can allow you to tackle your expenses and also save a lot of money.