While personal loans can be a great way to finance large purchases, consolidate debt, or cover unexpected expenses, they can also come with high-interest rates. Personal loans are unsecured, meaning there is no collateral or security to back up the loan. This makes them riskier for lenders, so they usually charge higher interest rates to compensate for this risk.
Interest rates on personal loans can make a huge difference in EMIs (equated monthly installments). High-interest rates can be a major financial burden for borrowers and affect the total cost of the loan. But if you follow some strategies before availing of a personal loan, you can avoid paying high interest. Here are some important tips to get an affordable personal loan interest rate.
Apply for the right loan by calculating the EMI amount
How much you should borrow depends on your financial situation and ability to repay the loan. To calculate the right loan amount, you need to figure out your monthly expenses and income and then compare that to the loan’s amount, interest rate, and repayment schedule.
You can use a personal loan EMI calculator to help you with these calculations and comparisons. Once you have calculated the right amount, you can confidently hit the private loan application button, knowing that you are not overpaying the interest.
Maintain a good record of repayment history
The lender evaluates your CIBIL score and loan repayment history when determining your interest rate on a personal loan. Repayment history includes not just your EMIs, but also other debts. If you have a good repayment history, you will be considered a low-risk borrower and may be offered a lower interest rate.
Clear off your debts monthly. Clear off your debts monthly. You can maintain a clean repayment history by paying your credit card bill on time or in full. And if you have other loans, make sure you pay the EMIs on time.
Keep checking seasonal deals.
Lenders often announce special schemes and offer lower-than-usual personal loan interest rates during festive seasons or holidays. Such offers are limited, but you can keep tabs through SMS, email, or advertisements. Availing of a personal loan during an offer period can help you save on repayment expenses in the long term.
Choose the right lender.
If you meet thecriteria of various lenders, comparing all different offers is a good idea. Each lender has its applicable interest rate and terms on personal loans. So, try to compare interest rates and additional costs like processing fees, foreclosure charges, etc., of each lender. Most lenders also offer lower interest rates to employees of well-reputed companies with a steady income.
Refinance or transfer any balances
If you have a personal loan with a high-interest rate, you can approach a new lender offering a lower individual loan rate and lesser processing fees. The transfer process involves nominal charges, including foreclosure charges, processing fees, and stamp duty on your loan agreement (only if applicable). It is known as a private loan balance transfer or refinances.
You can avoid highby understanding these strategies and simple tips. While these may appear to be basic suggestions at first, even a small decrease in interest rates can turn into significant savings in the long run.