Before approving a personal loan, lenders typically assess a number of variables. This includes the loan amount you’ve asked, your repayment capacity, and sometimes even the firm you work for. Personal loans have greater interest rates than other types of loans, such as home and car loans. As a result, if you need a personal loan, strive to secure one with the lowest interest rate possible, given your other limits.
When taking out a Personal Loan in India, the first thing you should consider is the interest rate. The best Personal Loans, in your opinion, are those with the lowest interest rates. Going to a reputable bank is your best bet; your friendly neighborhood moneylender will charge you an arm and a leg. There are huge disparities in interest rates between banks. As a result, shopping around and comparing interest rates offered by other banks is a good idea. However, keep in mind that banks provide varying rates to different clients depending on factors such as the consistency of your revenue stream.
Here are six strategies for lowering your interest rate.
Maintain Good Credit Score
Improve your credit score by paying off your debts and obligations over time. A credit score of 750 or higher increases your chances of getting a better personal loan arrangement. Maintaining a healthy credit mix of both secured and unsecured loans, monitoring your credit report often, avoiding direct loan and credit card applications to lenders, and maintaining a credit utilization ratio of less than 30% are just a few strategies to do this. A healthy credit score is an important factor of your personal loan eligibility. You should also keep an eye on your guaranteed or co-signed loan account to ensure timely repayment, since late or missed payments can hurt both the co-signer/guarantor and the primary borrower’s credit scores.
If you’ve already taken out too many loans, the lender may not be willing to give you a good deal. Furthermore, if your CIBIL score is below 700, your personal loan application may be rejected.
A Good Repayment History
Every month, try to pay off your credit card account in full and pay off your debts. You should also make timely payments on any other loans you have. This helps you obtain a better deal on future loans since if you have an excellent EMI payback history, you will have a greater chance of negotiating lower interest rates with the lender.
Compare Interest Rates
Consider visiting an online financial marketplace to compare and choose among multiple lenders based on your loan eligibility and requirements. Check with your current lenders as well, as they may be able to provide personal loans at a lower interest rate and with better service terms due to your previous relationship. Nowadays there are various personal loan apps that offer instant loan at lower interest rates. During the holiday season, banks offer tempting plans with lower interest rates on personal loans. It can be advantageous to take out a loan at such a time.
It’s a good idea to look into the personal loan options. Basically, before choosing a lender, one should compare the service terms supplied by several lenders. Make sure you consider the loan tenure, processing fee, prepayment charges, loan amount, and other factors while making your decision.
Check Interest Calculation Method
It’s possible that, despite the lender offering you a cheaper interest rate, you’ll end up paying more interest at the conclusion of the loan term. This is because the process of calculating the total interest payable varies between lenders, so you should be familiar with it. A lender may offer you a loan with a fixed or decreasing interest rate. In the case of a flat interest rate, interest is computed on the entire loan amount over the term of the loan. In the case of a declining interest rate, interest is computed on the outstanding principal, with EMIs gradually reducing the principal.
Qualification Based on Professional Credentials
The applicant’s profile has a lot to do with the decision of their loan application. The interest rate will be lower, if the applicant has a stable work profile. Especially, if the applicant draws a stable salary and works for a reputed company, the lenders could offer a lower interest rate. This is because their employers’ potential to give a consistent job is better, and lenders anticipate that the borrower will have a stable income and return the loan on time.
Employment History
Job and residential stability, as well as a solid FOIR (Fixed Obligation to Income Ratio), all contribute to a good credit score, which influences interest rates in part. Frequently, the bank will want you to have a two-year employment history, including one year with your present employer, before granting the loan. Loan applicants employed by the state or central government, PSUs, or quasi-government organizations are favored by lending institutions. This is reflected in the interest rates that are available. Furthermore, the loan interest rates are influenced by your reputation and financial stability.
