March 23, 2020
Personal loans are the most sought out loans but many of them come with higher interest rates as compared to auto or home loans. It results in a long repayment tenure with high costs. Although it holds true for most of the loans, you can avail personal loans with low-interest rates due to the availability of multiple lenders and unique personal loan deals.
So now availing this credit for education, vacation or home is possible with low-interest rates but you must research and find the ones suitable for you by following the steps mentioned below.
1 - Have a good credit score
A credit score portrays credit-worthiness of the borrower and shows how responsible a person has been with his/her financial obligations and credit in the past. This score ranges between 300-800 and a score above 700 is considered excellent.
A high credit score denotes you have been responsible with your loans and credit in the past and ensures some guarantee that you will do the same in the future. This leads to an applicant getting a lower interest rate on loans taken later.
If you have a poor credit score, you may be charged with a higher interest rate due to the same reason. However, you can improve your credit score in multiple ways - Checking your credit report with the credit bureau or any other financial marketplace and removing errors (if available), clearing all the past dues and maintaining your credit utilisation ratio. If you have a co-signed loan, you must ensure on-timely payments and avoid loan default.
2 - Compare lenders
While searching for personal loans, you must check the offers by multiple lenders and check which one suits you. You must compare personal loan lenders and check their interest rate and principal loan amount offered. It may take some time but research will go a long way in getting the best deals for you.
3 - Look for seasonal offers
Several banks and NBFCs offer seasonal offers on personal loans during festivals and offer low-interest rates on them. Lenders usually notify their customers via email or SMS about their deals. These offers are presented for a limited time and provide good discounts on interest rates, especially if you apply online during a festive season. Hence, it would be wise to look out for these.
In case you already have a good relationship with a bank, you can get low-interest rates and good services on your personal loans in this situation.
4 - Have a good repayment history
Maintaining a good repayment history denotes you being financially responsible. When you clear your EMIs, credit bills and pay your debts every month, it also helps in maintaining a good credit history. It can help you get the best personal loan interest rates because of the excellent EMI repayment history. Through this, you can also negotiate for a good rate with the lender.
5 - Check interest rate calculation
When you take a loan, you will be paying interest along with it when the repayment period starts. Calculating the interest to be paid beforehand can help you in the long run in terms of saving up on interest and not defaulting on your loans.
It can happen that you take a loan with a short repayment tenure, but the interest rate is high. This may result in you paying high-interest rate even though the tenure is short. In another scenario, you may take a low-interest loan with a short tenure. Here you will save up on interest in the long run.
The method of calculating interest may differ for lenders which is why you must clear it with the lender beforehand. You may get a loan on either a flat-interest rate or a reducing interest rate. A loan with a flat-interest may cost you more than the reducing interest rate loan. It is because the loan payment calculated on flat interest is based on the full loan amount throughout its period but for a reducing interest, the payment is calculated on the outstanding principal where EMI reduces the principal amount slowly.
6 - Get loans on the basis of your work/employment history
If you’re working in a reputed firm and getting a good income, this can lead you to get a good interest rate. Job stability and good income results in a good credit score and provides assurance that you can make repayment of the loan on time. It also maintains Fixed Obligation to Income Ratio (FOIR) which impacts the interest rate.
Most of the lenders look at an applicant’s employment history of 2 years at least. If your company has a good reputation, even that can help you get a decent interest on your personal loan. For example - If you’re working with the central or state government, you may get a good personal loan interest rate than someone who’s working in an XYZ organization.
Interest rate is an important factor in selecting a loan. But this shouldn’t be the only thing you should look for in a loan. Don’t ignore the terms and condition of the lender, loan tenure, charges and fees, loan amount and other factors as such.