Personal loan is the ideal credit instrument to deal with any kind of financial crisis as they come with no pre-determined end use, do not require any collateral/security, are disbursed quickly, require minimum documentation and so on. Here are some tips to secure lower interest rates on personal loans:
- Maintain a good credit score
A score closer to 900 is generally considered to be a good score. Having a good credit score increases your ability to secure new credit and it also enables you to get the desired loan amount with the desired repayment tenure at reasonable rates of interest. Usually people with a higher credit score are able to get a lower personal loan interest rate on their borrowing. A high credit score indicates responsible credit behavior and higher credit worthiness. You can maintain a good credit score by making timely payment of your debts and dues, maintaining your credit utilization ratio within the 30% limit, maintaining a balanced credit mix, avoiding simultaneously loan inquiries with multiple lenders which increases the number of hard inquiries on your credit report (and shows you to be credit hungry), etc.
- Maintain a good repayment track record
Try to pay your loan EMIs and credit card bills in full and on time. This helps you maintain a good history of repayment which in turn will help you negotiate better rates of interest on personal loans with the lender.
- Compare interest rates offered by different lenders
If you meet the personal loan eligibility criteria of multiple banks, it is always a good idea to visit an online financial marketplace and compare the different offers. This can help you secure the best deal.
- Look out for Special offers
When applying for a personal loan, always look out for special offers such as those offered during festive times. During the festive season, banks often launch attractive schemes offering lower than usual personal loan interest rates which will eventually help you save on the loan repayment expenses in the long term.
- Good existing relationship with the bank
Having a good existing relationship with a bank/lender may help you secure a personal loan at a discounted rate of interest along with better terms of service. This is because the bank/lender is aware of your responsible credit behaviour and there is relatively a lower degree of risk involved as compared to lending to a new customer.
- Check the method of interest calculation
It is always advisable to check the method used by a particular lender to calculate the interest payable on personal loans. Often loans may be offered at a lower rate of interest but you may end up paying a higher interest amount at the end of the loan tenure. Lenders offer loans either at flat interest rate or at reducing interest rate. In case of flat interest rate, interest is calculated on the entire loan principal throughout the loan tenure. Whereas, in reducing balance method, the personal loan interest is calculated only on the outstanding principal. Therefore, availing a personal loan at a reducing interest rate could cost you less than availing a personal loan at a flat rate of interest and vice versa.
- Have a good history of employment
Having a long and stable history of employment can not only enhance your personal loan eligibility but also help you get lower rate of interest on your personal loan. Lenders often require applicants to have at least a two year overall history of employment including one year with their current employer. People employed with reputed public and private organisations, central or state government, etc. are often offered personal loans at more favourable terms and at lower rates of interest. This is because these applicants are believed to have stable jobs and income and therefore less likely to default on their borrowings.
While these might at first glance seem like simple tips and practices, they can take you a long way in securing a personal loan at a lower rate of interest and reduce your overall burden of debt in the long term.
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