How to Get a Better Interest Rate on a Personal Loan

When it comes to a personal loan, the banks generally charge a higher interest rate as it is a collateral-free loan. So you must try to get a loan at a minimum rate and settle for a lender who gives you better loan terms. But banks sanction loans based on the borrower’s creditworthiness.

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How to Get a Better Interest Rate on a Personal Loan

Here are some important things you must keep in mind while applying for a personal loan:

Our Credit Score Never Looked This Good:

The credit score is one of the key things the lender will check to determine your creditworthiness and the stability of your finances. A good credit score will instil a guarantee among lenders and will boost your chances of loan approval. Let’s take a look into some of the ways that helps you maintain your credit score:

• Keep your Credit Utilization Ratio Below 30%: Credit card it is important to make sure you have a healthy credit report to reduce chances of rejection of loan application. Keep an eye on your credit utilization ratio and do not come too close to your credit limit. Know the credit limit your bank offers you and make sure your credit card payments do not 30% of the prescribed limit.
• Keep a Check on your Credit Report: Checking your credit reports frequently will help you to stay informed. If you spot any errors or unexpected changes that have made their way into the credit report then you can take necessary steps to rectify these errors on time. By remaining informed about your credit report you can take better financial decisions. You can make soft enquiries of your credit score through online aggregators and websites for free.
• Don’t Apply for too Many Loans at Once: Applying for multiple loans at once will make you appear credit hungry. Additional, each loan application will result in hard enquiries and each hard enquiry will reduce your credit score by 5 to 10 points each time. So if you have faced rejection, wait for a few months before making a new credit application.

See Also: Know All About Pre-Approved Personal Loans

Maintain A Good Repayment History:

Good repayment history is one of the major factors that help get good deals on loans and credit cards. If you have a long history of repaying loans and credit card dues on time then you are likely to have a high credit score.
Therefore you should be mindful about paying off your credit card bills and loan EMIs. Do not miss your payments dates and make sure to pay your bills in full every month. This shows that you are a responsible borrower and it also helps you maintain a good credit score.

Compare And Shop Around:

Before you apply for a personal loan you must consider evaluating the purpose and the utility of the loan. Since personal loans are offered with high-interest rate and can significantly pile up your loan burden, make sure to check the total cost of the loan. Do not go for any loan offers rather check the eligibility and interest rate offered by other lenders as well.

All you have to do is you can visit an online financial marketplace and compare the interest rate of various lenders. Compare the interest rate with the rates offered by your bank. Compare lenders based on various parameters like tenure, interest rate, processing fee etc. before finalizing your lender. You can also apply for personal loan during the festive seasons to get benefitted from low-interest rate and zero processing fee offers.

See Also: How to Get Personal Loans Instantly?

Know The Interest Calculation Method:

Most often people settle for lenders offering lower interest rate and at the end of the loan tenure end up paying higher interest. One of the reasons for this can be the difference in the method of calculating the total interest payable. This is one of the key factors you should keep in mind before applying for a personal loan.

Lenders usually consider methods like reducing the interest rate and flat-rate interest rate to calculate interest rate. In case of reducing interest rate, the interest is levied on the outstanding principle whereas for flat interest rate the interest is levied on the overall amount. So a flat-rate personal loan can cost you more than a reducing rate personal loan.

See Also: How To Get Personal Loan of 2 Lakhs?

Income and Employment History:

Loan applicants working in blue-chip companies, reputed MNCs or Maharantna/ Navaratna companies are likely to get better deals. Lenders usually perceive such borrowers capable of repaying their loans since they have a stable income. Besides your employment history lenders also check other factors like your residential stability and loan to income ratio as important criterions while sanctioning loans.

Before signing the personal loan application make sure the loan terms and interest rate is worth the financial burden.

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