Personal loans have developed as a lifeline for people who want emergency financial support. These unsecured loans are popular because of their flexible end-use, little paperwork, and quick disbursement. However, the interest rate is the most important component in determining how cost-effective a personal loan is. As a result, before taking out a personal loan, you must ensure that you get the lowest personal loan interest rates available to reduce your payback burden. Here are strategies to help you avail the best rates from the best banks personal loans.
- Maintain a high credit score
Banks consider credit scores as an indicator of your creditworthiness. A score above 750 is known as an excellent score, signifying a good payment history and excellent credit behaviour. This transfer of risk to the lender allows them to offer you a lower interest rate.
- Compare different banks
Banks with various lending portfolios and target customers provide different interest rates. With online comparison portals, it is possible to compare the rates offered by various banks, their terms, and conditions, to the one with the lowest personal loan interest rates.
- Leverage existing bank relationships
If you have a strong and favourable relationship with a particular bank, this may lead to an offer of a lower interest rate on personal loans. You are a less risky borrower for them, as they already know you better and your financial behaviour.
- Negotiate with the bank
There is always something to bargain for. If you have a good credit score and a stable income, you are in a position to negotiate for a lower interest rate.
- Opt for shorter tenures
While longer repayment tenures are accompanied by low EMIs, they also imply large interest payments. Borrowers with shorter terms might have higher EMIs, but they pay less interest in total, making the loan cheaper.
- Maintain a stable employment history
Lenders are more receptive to job stability and fixed business income. This stability shows them that you have regular income coming in and the ability to repay the loan, therefore, increasing your chances of obtaining lower interest rates.
- Opt for seasonal offers
Banks usually have promotional campaigns during festive seasons or on special occasions. These offers might include discounted interest rates or waiver on processing fees and contribute to securing a cheaper loan.
- Maintain a low debt-to-income ratio
This figure shows the percentage of the income that is used to pay off the existing debts. The lower ratio means that you have more disposable income, therefore, making you less risky for the bank and more likely to avail lower interest rates.
- Choose a lower loan amount
The greater the loan amount, the greater the risk for the lender. If you can manage your needs with a smaller loan, you can usually get a lower interest rate.
- Show repayment capacity
Steady income and savings limited financial burden, and a good repayment history show your repayment ability. Lenders prefer such borrowers and offer them lower interest rates.
- Apply with a co-applicant
Having a co-applicant who has a good credit score can help lower the overall risk grade thus lowering the interest rate.
- Check for hidden charges
A lower interest rate can be compensated by high processing fees, prepayment penalties or other, hidden charges. Ensure that you go through the fine print and do a proper investigation of all expenses involved before you pick a lender.
- Prefer banks over NBFCs
While NBFCs may provide loans to those with low credit scores, the interest rate offered by them is usually higher. However, banks normally pay lower interest rates.
- Check for special schemes
Some banks offer special packages with lower interest to categories of individuals such as women, senior citizens, government employees, etc. Find out if you are eligible for any of such schemes.
- Keep an eye on the repo rate
The repo rate is the rate at which the RBI lends money to commercial banks. A drop-in repo rate sometimes trickles down to the reduced personal loan interest rates.
- Improve your creditworthiness
Make sure you are paying off your existing loans on time and in full, do not make late payments, and maintain a good combination of secured and unsecured loans to improve your credit score and creditworthiness.
- Select a full-time job
A full-time employee is perceived as financially stable, which gives them an edge over others and increases the possibility of getting a lower interest rate.
- Regularly monitor interest rates
Keep an eye on the market trends for dipping interest rates. In case the rates drop drastically, you can think of transferring your existing loan to a new lending institution that is offering a lower rate.
- Use interest rate calculators
Online interest rate calculators allow you to compare the effective cost of borrowing from different lenders and this helps you select the cheapest option.
- Avoid multiple applications
Every loan application leads to a hard credit report inquiry, which then lowers your credit score. instead, investigate in-depth and do not apply until you find the best option for a personal loan.
Ending note
Availing a personal loan can be a financial boon if done correctly. The trick is to have the most reasonable personal loan interest rates that can easily be repaid. By applying these strategies, you can be confident of choosing a good option. Keep in mind this: lower interest rate significantly reduces your economic burden. Therefore, the interest rate of a personal loan should be checked carefully before you apply for it.
Furthermore, personal loans must be a strategic solution only when there is a financial crisis, or you want to borrow a large sum quickly. Do not use them regularly for your day-to-day spending. While interest rate makes a loan very attractive, you should also consider other factors including tenure, prepayment clauses, and hidden charges. Be responsible and do your homework. In the financial vertical, your most capable safety device is your knowledge. With diligence, research, and meticulousness, you can go through the loan procedures and get the one that best suits your financial circumstances.
