Dear Sir, I hv taken education loan in August 2021 for my daughter. That time rate of interest was 8.05pa/ & amount was 20 Lacs and repo rate was 4%. And EMI was 19200 as per agreement. Course duration was one year. From September 21 to September 22. And had one year moritorium period after the course. So last week I go to chk my repayment start date with bank. They told me now ur EMI will be 25800 bcoz now repo rate is increased to 6.5%. So do u think bank can increase EMI like this? Is it a common practice? Then what's the use of freezing EMI earlier?? Kindly advise. Thanks and Regards

Ans: Thank you for sharing details about your housing loan situation. It is indeed challenging when interest rates increase, impacting your financial planning. Let’s evaluate your current scenario and explore potential solutions to manage your housing loan more effectively.

Understanding Interest Rate Fluctuations
Interest rates on housing loans are influenced by various factors, including the Reserve Bank of India's (RBI) repo rate. When the repo rate increases, banks generally raise their lending rates. Over the past three years, your interest rate has increased from 7.25% to 9.75%, reflecting this trend.

Evaluating Your Current Rate
Although you mentioned you are considered a gold customer with a slightly reduced rate of 9.25%, this rate still appears high. Considering market trends and available rates from other financial institutions, it is crucial to assess if you can secure a better deal.

Steps to Consider for Managing Your Housing Loan
1. Refinancing Your Loan
Refinancing or transferring your loan to another bank offering lower interest rates could be beneficial. Here’s how you can proceed:

Research: Compare interest rates offered by various banks and financial institutions. Look for promotional offers and rates for balance transfer loans.

Calculate Savings: Evaluate the potential savings by considering the new interest rate, processing fees, and any other charges. Online calculators can help estimate these savings.

Application Process: If the savings are significant, initiate the loan transfer process. The new lender will pay off your existing loan, and you will continue with the new lender at the reduced rate.

2. Negotiating with Your Current Bank
Before deciding on a loan transfer, negotiate with your current bank. Here are steps to strengthen your negotiation:

Present Market Rates: Gather information on current market rates and offers from other banks. Present this data to your bank.

Highlight Your Profile: Emphasize your status as a gold customer, consistent repayment history, and any long-standing relationship with the bank.

Request Rate Reduction: Formally request a reduction in your interest rate. Banks may offer a reduced rate to retain valued customers.

3. Switching to a Different Loan Product
Some banks offer different loan products with varying interest rates and benefits. Explore if your bank has alternative loan schemes with better rates and terms. Switching to a more favorable product could reduce your financial burden.

Evaluating the Financial Impact
1. Cost-Benefit Analysis
Conduct a detailed cost-benefit analysis before making any changes. Consider the following:

Processing Fees: Check the processing fees for transferring the loan or switching products.
Prepayment Charges: Some loans have prepayment penalties. Ensure you are aware of these charges if applicable.
New EMI and Tenure: Calculate the new EMI and loan tenure. Ensure it fits your budget and long-term financial plans.
2. Impact on Monthly Budget
Assess the impact of the new EMI on your monthly budget. Ensure the revised EMI is affordable and does not strain your finances. Maintain a balance between meeting EMI obligations and saving for future goals.

Exploring Additional Strategies
1. Prepayment Options
If you have surplus funds, consider prepaying a part of your loan. Prepayment reduces the principal amount, thereby lowering the interest burden over the loan tenure. Most banks allow partial prepayments without any penalties.

2. Increasing EMI Payments
If feasible, increase your EMI payments. Higher EMIs reduce the loan tenure and overall interest outgo. Ensure the increased EMI is sustainable within your financial plan.

Consulting a Certified Financial Planner
A Certified Financial Planner can provide tailored advice on managing your housing loan. They can help you evaluate options, negotiate with banks, and make informed decisions. Their expertise ensures your financial strategy aligns with your long-term goals.

Conclusion
Your concern about the high-interest rate is valid. By exploring refinancing options, negotiating with your current bank, and evaluating different loan products, you can potentially reduce your interest burden. Additionally, prepayment and increasing EMI payments can further manage your loan effectively. Consulting a Certified Financial Planner for personalized advice is also recommended.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

If it is an RBI regulated lending agency then you may lodge your grievance with ombudsman at RBI.

They can intervene to restructure the loan considering your job loss and illness.

Best wishes;

Ans: Your financial situation is challenging but manageable with the right strategy. You need a structured approach to reduce your loan burden while ensuring financial stability. Below is a step-by-step plan to help you manage your EMI payments effectively.

Assess Your Current Financial Situation
You have two personal loans totaling Rs. 7 lakhs.
The Rs. 2.25 lakh loan EMI is being paid on time.
The Rs. 4.75 lakh loan EMI is difficult to pay due to job loss.
Your lender has rejected the restructuring request.
You are doing odd jobs to cover partial EMIs.
You have borrowed money from family and friends for health-related expenses.
Immediate Steps to Reduce EMI Pressure
Prioritise Essential Expenses

Focus on necessities like rent, food, and medical expenses.
Cut down on discretionary spending.
Avoid new loans or credit card debt.
Try Negotiating Again with the Lender

Approach the lender with a new repayment proposal.
Request a lower EMI based on your current earnings.
Highlight job loss and health issues in your request.
If needed, offer partial payments to show commitment.
Seek Financial Assistance from Family or Friends

Consider borrowing a small amount to clear missed EMIs.
Ensure you repay them once you secure a stable job.
Use Savings or Liquid Assets

If you have emergency savings, use them for EMI payments.
Consider selling small assets or non-essential valuables.
Medium-Term Solutions for Loan Management
Debt Consolidation Loan

Apply for a new loan with a lower interest rate.
Use it to pay off the Rs. 4.75 lakh loan.
This can reduce your EMI and extend the tenure.
Compare interest rates before applying.
Balance Transfer to Another Bank

Some banks offer lower interest rates for balance transfers.
Shifting your loan to another bank can reduce EMI pressure.
Check the processing fee before proceeding.
Freelance or Part-Time Work

Explore temporary jobs or online gigs.
Any additional income can help cover EMIs.
Consider skills-based freelancing for better income.
Emergency Loan from Employer or Community Groups

Some organisations offer interest-free loans to employees.
Community groups may provide financial assistance.
Check for government schemes supporting job seekers.
Long-Term Strategies for Financial Stability
Build an Emergency Fund

Once you secure a job, start saving for emergencies.
Keep at least six months' expenses as an emergency fund.
This will prevent future financial stress.
Improve Credit Score

Pay EMIs on time to avoid credit score damage.
Avoid multiple loan applications in a short period.
Good credit history will help in future financial needs.
Plan for Future Expenses

Set financial goals for savings and investments.
Avoid unnecessary borrowing in the future.
Invest in health insurance to cover medical emergencies.
Final Insights
Focus on paying the overdue EMI as soon as possible.
Explore options like debt consolidation or loan balance transfer.
Look for additional income sources to ease financial pressure.
Once stable, build an emergency fund to avoid similar issues.
Stay disciplined with spending and financial planning.
If you need more personalised guidance, feel free to reach out.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment