When you take a personal loan, one of the major considerations is the rate of interest. Since a personal loan is an unsecured loan, the interest rates are generally on the higher side. However, it doesn’t mean that you cannot get a competitive interest rate. In this article, we will talk about how to get the best interest rates when you apply for a personal loan.
7 Tips to Get a Better Interest Rate
- Maintain a High Credit Score
Your credit score reflects your attitude and behaviour toward loan repayment. A high credit score shows that you repay your bills on time and manage debt effectively. This will give the lender the confidence to loan you the money. Moreover, when you have a high credit score, you gain the ability to negotiate the interest rates with the lender. This way, you can get the best interest rates for a personal loan.
A score of 750 and above is considered a good score and it gives you a higher chance to secure a loan at a low-interest rate.
Some ways to maintain a high credit score:
- Pay your bills on time
- Avoid impulsive purchases on credit card
- Manage debt effectively
- Keep a Good Repayment Track Record
Repay all your credit card bills in full and on time, and clear off your debts every month. Pay off the EMIs of all your loans on time.
A healthy repayment track record won’t just improve your credit score but also builds trustworthiness among financial lenders. It will put you in a better position to negotiate for lower interest rates.
- Compare Different Lenders
Earlier, banks were the only go-to option if you wanted to apply for a personal loan. However, the rise of non-banking financial companies (NBFCs) has changed the way one can get personal loans.
Don’t take the first offer that you come across. Spend some time and compare offerings from different lenders. Consider checking out some of the best personal loan apps in India for competitive interest rates.
- Take Advantage of Seasonal Offers
Banks offer lucrative interest rates during certain times of the year, such as the festive season. They do this to match up to the competitive corporates interest rates that other banks offer.
Such seasonal offers last only for a limited period of time. So, take advantage of such offers and cut down your loan expenses.
- Understand Interest Calculation Method
Understand the loan calculation method when you take a personal loan. Check what type of interest rate is your lender offering you: flat interest rate or reducing/diminishing interest rate. A diminishing interest loan rate implies payment of interest towards the outstanding balance only. On the other hand, a flat rate requires you to pay interest towards the loan amount throughout the entire loan tenure.
Understanding how the loan interest rate is calculated will help you can get a better deal. Generally, a personal loan with reducing interest rate turns out to be less expensive than a flat interest rate loan
- Build a Relationship With the Lender
If you are an existing and old customer, sharing a good relationship with the bank, you may get a better interest rate in an attempt to retain you as a customer.
Another advantage of building a relationship with the bank is that the lender is aware of your credit behaviour. This works in your favour as your credit history would work as a reassurance to get you a loan at a low-interest rate.
- Credibility of the Employer
If you are working with a reputed employer, you may get a better interest rate. This is because your employer’s credibility proves that you have a steady job and income. This gives lenders the confidence that you will be able to repay the loan on time.
Although the points above can get you a personal loan at a low-interest rate, it is important that you don’t base your decision solely on the interest rate – consider other loan parameters such as loan tenure, prepayment charges, processing fee, etc. to ensure that you get the best loan offer.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at email@example.com.