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Understanding how to repay a loan smartly will not only save your time, but will also help you to save a greater portion of your hard-earned money. Depending on your financial standing, you can choose the loan repayment method to pay off your loans.

Loan repayment reduces your debt obligation, improve the CIBIL score, and enables you to build your financial stability in a significant manner. Below, we have stated the different methods of loan repayment, do have a look at them to easily pay off your loan!

Equated Monthly Instalments 

EMI is the most well-known credit repayment method. Each portion includes a part of the principal and a part of the interest, which is scheduled to be paid every month over a fixed period. 

Having said that, a few banks permit their borrowers to prepay the loan after a specific number of instalments have been made. A few banks may charge a pre-payment fee if you are willing to pre-pay your loan. 

Prepayment can be carried out in either of the below-stated 2 ways: 

• Partial or Part Prepayment: Partial prepayment refers to the amount paid over and above the monthly instalment. A loan prepayment reduces the principal. As a result, interest also reduces because the interest will be applied to the new decreased principal. 
• Full Prepayment or Pre-Closure: Loan foreclosure or full prepayment refers to the full repayment of a loan in a single attempt ahead of the tenure.  

Bullet Repayment 

With some loan products, you get the chance or option to repay the loan through the bullet loan repayment method. With this option, you have to pay just the interest segment every month. At the point when the loan tenure ends, you have to make one shot repayment that pays off the whole principal loan amount.

Modes of Loan Repayment

During the loan period, the right mode of repayment can make it convenient for you to pay off the loan. The following are modes of repayment of the loan for the convenience of the user:

• ECS (Electronic Clearance System): This is an electronic way of moving funds from one bank to another. This mode is used by financial institutions to make payments like dividends, wages, pensions, etc. It can also be used to pay bills such as phone, power, water, etc.

Equal monthly loan instalments and SIP investments are also carried out using the ECS mode. This is used for the purposes of debt as well as credit. It allows the debiting of the customer's account on a given date and is available in all major cities.

In exchange, this significantly decreases the use of paper tools and increases the performance of procedures and customer satisfaction. There is no restriction on any payment size.

• NACH (National Electronic Clearing House): NACH is a program provided to banks, financial institutions, and corporate & government services by the National Payment Corporation of India (NPCI).

NACH is targeted at repetitive interbank transactions of high or low volume debit/credit. This method facilitates the execution of transactions in real-time mode. NACH is being extended to include more than 82,000 bank branches on a nationwide network. It's also expected that this unified payment system will consolidate the various ECS systems and help to eliminate local barriers.

• PDC (Post Dated Cheque): For a future date, PDC's are issued by the payers. On the date specified on the cheque, these PDCs may either be cashed or deposited. It is normal and acts as an exchange bill and may not be payable or requested prior to the date written on the cheque.

The payer or the bank will avoid such PDCs, creating difficulties for the one who has to collect the payment from the same one. Conversely, in the event of non-receipt of the goods, the payer can also avoid the payment.

• Standing Instruction/ Debit Mandate: Standing Order or Standing Instruction is an instruction provided to his or her bank by an account holder to pay a fixed sum at a regular interval to another bank/account.

Often, this directive is also known as the Debit Mandate or Banker's Order. This facility is used to pay for mortgage, rent or other fixed payments since the variable bill sum is typically not appropriate for payment.

Conclusion

To sum up, loan repayment must be considered before availing of any sort of loan as that is one will be required to carry out throughout a specific term. In addition to the fact, they reduce your loan obligation and interest accrued, they are additionally reflected in your credit record.

Defaulting on loan repayment can result in a higher interest rate or bankruptcy if it gets severe. There is also a long-term implication on your credit well-being which is reflected on your credit record.