When you are in a financial bind, a personal loan is a flexible choice to meet your demands. For the purposes of an emergency fund, they should be borrowed. To make personal loans conveniently obtainable for customers, lenders are developing a wide range of practical solutions. Both online and in-person applications are accepted for personal loans. The important thing is, however, how wisely and cautiously you decide to approach a lender for a personal loan.
Accepting a loan offer from a lender who approves your application. But offering a high-interest rate is a terrible decision since you’ll end up with a sizable debt because you’ll be paying both the principal and the high-interest amount during the payback period. Personal loans typically have higher interest rates than other types of loans, such as home and auto loans. Therefore, given other limitations, strive to obtain a personal loan with the lowest interest rate conceivable. Here are six methods for obtaining a lower interest rate.
Maintain a good credit score
By steadily paying off your debt and obligations, you can raise your credit score. You have a better chance of getting a better personal loan deal if your credit score is 750 or higher. Maintaining a healthy credit mix of both secured and unsecured loans, monitoring your credit report frequently, avoiding direct loan and credit card applications to lenders, and keeping your credit utilization ratio within the 30 percent cap are a few ways to do this. Additionally, you should keep an eye on your co-signed or guaranteed loan account. It is to ensure prompt repayment because missed or delayed payments can lower both the co- signor’s/ guarantor’s and the primary borrower’s credit scores.
Maintain a good repayment history
Try to pay off all of your bills each month by making a complete payment on your credit card account. You should also make on-time payments for any other loans’ EMIs. This helps you obtain a better deal whenever you take out another loan in the future since you will have a greater chance of negotiating interest rates with the lender if your history of on-time EMI repayment is strong.
Compare interest rates
Consider visiting an online financial marketplace to compare and select lenders based on your personal loan eligibility and requirements. Check with your current lenders as well because they frequently provide personal loans at a substantially lower interest rate and better service terms because of your previous relationship.
Check the interest rate calculation method
Even though the lender offered you a reduced interest rate on the loan, it is possible that you really paid more in interest towards the end of the loan’s term. This is due to the fact that the method used by lenders to determine the total interest payable can vary, so you should be aware of it. You could receive a loan from the lender with a fixed or decreasing interest rate. When there is a flat interest rate, interest is charged on the entire loan amount for the duration of the loan. When the interest rate is decreasing, interest is computed on the outstanding principal, and the principal amount is gradually reduced through EMI payments. In this sense, taking out a personal loan with a fixed interest rate can end up costing you more money than taking out a loan with a decreasing interest rate.
The credibility of the employer
It’s possible for employees of reputable/blue-chip organizations, international corporations, etc. to receive favorable arrangements. Because their employers are more likely to be able to guarantee a consistent job, lenders anticipate that borrowers will be more likely to have a stable income and make their loan payments on time.
Employment history
Building a good credit score and keeping a solid FOIR (Fixed Obligation to Income Ratio) both have little impact on interest rates. The bank frequently demands that you have two years of employment history. This includes one year with your present employer, before granting the loan. Lending institutions favor loan applicants who work for federal, state, or local governments, PSUs, or quasi-governmental organizations. The interest rates on offer reflect this. The loan interest rates may also be influenced by your reputation and financial security.
It is advisable to review the personal loan offers. Basically, before choosing a lender, one should review the service terms provided by different lenders. Make careful to base your choice on factors. Such as loan tenure, processing fee, prepayment penalties, loan amount, etc. in addition to the interest rate being given.
