A personal loan is the key to your financial freedom. These loans come with extreme flexibility and convenient accessibility which not only makes them easy to avail but also to manage and repay in time. You may simply need to meet a handful of eligibility requirements set by your lending institution and complete the paperwork with minimum documents to be able to avail an instant personal loan today. You can also avail the loan in high value to meet your diverse financing needs with ease and repay it conveniently in easy EMIs over an extended tenure. Typically when availing a personal loan through a reputed instant loan app, you can avail financing of up to Rs.1.5 Lakh with ease against the right eligibility fulfilment. All of these features and facilities combine to make a personal loan a great financing option.
Given that lenders provide these loans with zero asset security also make them preferable to borrowers as they do not freeze their assets. However, the absence of any collateral also subjects the lender to a high lending risk. For this purpose, the interest rates on personal loans are usually higher than those on secured loans. Not to say that it makes these loans affordable, as you can always employ various ways that can help bring down the overall cost of your loan.
Here are some useful techniques you can employ to get a low interest rate on your personal loan.
Ways to Secure a Low Rate of Interest on Your Personal Loan
Work on your credit score
Your credit score serves as the first face of your creditworthiness to the lender, allowing them to assess if and how much they should lend you. A high credit score means you are a responsible borrower and the lender is more likely to get the payments on time, while a poor credit score flags the lender to be cautious about your repayment behaviour. Even though some instant loan apps do not make it a mandatory requirement, having a high score can help you get better interest rates.
So, before you apply for a personal loan, make sure to check your credit score. You can easily check your credit score online with the help of your PAN card number. If your credit score is not in the green zone, then you can take necessary steps to improve it. Pay off some of your existing debts, do not apply at multiple lenders, and check with the bureau that all your details are correct.
Compare the lending institutions for the best loan offer
One great way to get the best rates available in the market on personal loans is to compare the rates offered by different lenders. It should help you determine which lender is providing the best rates on the loan.
Once you know the best rate that you can get, you can also negotiate with your lender and get a better interest rate. Download an online loan app and check the interest rates, often times, the interest rates offered by these apps are lower than that of the traditional lenders. This is because of the low operational cost of these Fintech companies.
Keep your EMIs affordable
While opting for a personal loan, the most important thing that you need to check is the EMI that you would have to pay to the lender every month. The EMI of your loan depends on three things – the principal amount you borrow, the tenure of your loan and the interest rate.
Since the interest rate is not under your control, you can adjust the principal amount and the loan tenure to get an EMI that can be easily accommodated in your monthly salary. Extending your loan tenure is the simplest way to bring your EMI down. However, longer tenures also mean higher interest pay outs. So, do not opt for the maximum tenure option. You can use an online EMI calculator to check the most affordable EMI by adjusting the tenure of your loan.
Work for a reputed organization
The company or organization you are working for also affects your loan interest rates. Individuals working in government sector or multinational companies often get better deals on interest rates as compared to professionals, businessmen or employees working with small companies. This is because of the assurance of high job stability and regular salary that comes with these big corporations.
So, if you are thinking about switching your job, consider these points too. A start-up might offer you a better salary and greater challenges, but working for an established company has its own perks.
Keep your FOIR in check
Your FOIR or Fixed Obligation to Income Ratio represents how much burdened your monthly income stands based on the fixed monthly liability you need to service. To get the best rates on your personal loan, you need to keep the FOIR under 50%. When calculating FOIR, know that this percentage takes into consideration your new EMI liability to be created as well for the purpose of loan assessment.
Apply under your maximum borrowing capacity
Even though you may be eligible for a high loan amount, it is smart to apply for a financing value lower than your maximum eligibility. This is because it helps reflect a high income threshold, reducing the lender’s risk and allowing them to offer low rates on these instant money loans.
Apply during the festive offers
If your need for the personal loan is not urgent, then you better wait for the festive season. With so many lenders offering instant personal loans, many come up with festive offers and promotional deals to gain an edge over the competition and on-board new customers.
Many high-end products also see heavy discounts during this season. So, whether it is a home appliance or an electronic gadget, wedding shopping or travel aspirations, planning it during the festive season can bring you extra perks.
Go for secured personal loan
The prime reason why personal loans have high interest rate is because of its unsecured nature. These are high risk loan instruments and because of this the lender levy higher interest rates on personal loans as compared to home loans or car loans.
You can opt for a personal loan against FD or personal loan against mortgage to get a loan at lower interest rates. In this way, you do not have to pull out your investments before maturity and also get the necessary funds to fulfil your financial needs.
Choose your interest rate wisely
While availing a personal loan, the lender may offer you a floating interest rate or fixed interest rate. With floating interest rate, your EMI might not be fixed every month as the interest rate would vary as per the market rate. But there are a few perks of opting for floating interest rate.
In case you wish to foreclose your loan, there is no foreclosure fee on loans with floating interest rate. Also, a decreased interest rate can reduce the actual cost of your loan. Typically, floating interest rates are 1% to 2.5% lower than fixed rates of interest.
Getting a personal loan at low interest rate can help you save big over the tenure of the loan. There are many ways in which you can negotiate with your lender and get a loan at a competitive interest rate. Make sure you compare different lenders before choosing the one that best fits your requirement. However, also remember not to apply for the loan with multiple lenders at once as this impacts your credit score negatively.
In case you have an existing loan that you opted for at a high interest rate, you can still reduce the interest rate. You can either negotiate with your current lender or opt for a loan transfer.