Don’t get trapped into a high-cost personal loan! Take cues from our tips and find personal loans at the best interest rates.
Among all retail loans, personal loans are the number one choice for individuals to meet emergency cash needs. Whether you’re looking to tide over a medical emergency, upgrade your lifestyle, travel with your family or host your daughter’s marriage in style – personal loans lend a helping hand during crucial moments in one’s life.
The biggest advantage of personal loans is that they are easy to get. You don’t have to go through tons of paperwork like home loans, car loans, etc. Thanks to the availability of digital lenders, today, you can quickly get a personal loan with just a few clicks.
But, the biggest criticism of personal loans is that – they are expensive. Personal loans interest rates are significantly higher than other retail loans like home loans, car loans, and education loans. Higher interest rates mean a higher repayment burden.
The happy news here is that – you can reduce personal loan interest rates. Yes, there are several factors under your control that can help you avoid high-cost personal loans, thereby lowering your overall loan burden.
In this article, we list out smart tips to ease your personal loan burden. Take cues from our suggestions and find the best personal loans at the best interest rates.
Tip #1: Aim to Improve your Credit Score
When you apply for a personal loan, the first factor that the lender checks is your credit score. A good credit score improves your loan eligibility, helps you get bigger loan amounts, and reduces interest rates.
Generally, individuals with higher credit scores enjoy lower personal loan interest rates. A score of 750 and above is considered good. A high credit score indicates that you are responsible with credit. It shows that you’re creditworthy.
The first step to improving your credit score is to know where you stand. Check your latest credit score for free at CreditMantri. You can check your credit score quickly and with just a few details like your mobile number, email ID, PAN card, etc.
Once you’re aware of your score, here are a few tips to boost the numbers:
- Ensure that your credit utilisation ratio is lower than 30%. Ideally, the sum of your debts should be lesser than 30% of your overall available credit.
- Maintain a healthy mix of secured and unsecured credit. Common examples of secured credits include home loans, vehicle loans, etc. Unsecured debts, on the other hand, include credit card dues, personal loans, etc.
- Avoid multiple simultaneous loan enquiries with numerous lenders.
- If your scores are low, you can consider professional credit repair services. At CreditMantri, we can help you with an in-depth analysis of your credit scores and work with you to boost the numbers.
Tip #2: Maintain a Good Credit History
Besides the numerical score, lenders also analyse your credit history to determine your loan eligibility and interest rates. Maintaining a good repayment track record works in your favour in reducing the overall loan burden. Paying your EMIs on time without any defaults, settling your credit card bills in full before the due date are some of the top ways to maintain a good credit history.
A good credit score and stellar credit history are like two aces up your sleeve. They can help you negotiate better interest rates with the lender, lowering your personal loan interest rates.
Tip #3: Do your Homework – Compare Interest Rates
Before you apply for any loan, including a personal loan, make sure to compare the different options available. Today, numerous lenders offer personal loans – traditional banks, NBFCs as well as new-age Fintech companies. So, make sure to check around to find the best interest rates.
A smart tip here is to use a third-party personal loan aggregator like CreditMantri. The site lists out all the personal loans available on the market. You can then quickly compare loan interest rates without having to check out the website of each lender separately. Another benefit of using a third-party loan marketplace is that it improves loan eligibility chances. These platforms list the best personal loans matched to your credit profile, so you can avoid applying with numerous lenders.
Tip #4: Understand the Difference between Reducing and Flat Interest Rates
To ensure that you avoid falling into a high-cost personal loan trap, you need to be aware of personal loan interest calculation. Personal loan interest rates can be broadly classified into:
- Flat interest rates – Here, the interest is calculated on the entire loan principal throughout the loan tenure.
- Reducing interest rates – Here, the interest is calculated only on the outstanding principal and not the original principal.
Opting for personal loans with a reducing interest rate can cost you less than a flat rate of interest. To simplify your interest calculations, you can use tools like a personal loan interest calculator. These tools automate the calculation. You can play around with the values to get a clear picture of the loan before committing to it.
Tip #5: Maintain a Stable Employment Track Record
Having a stable history of employment works in your favour while applying for loans. When lenders see that you’re drawing a steady income and hold a stable job, they perceive you as a lower risk for defaults. Since you have a stable income, you’re more likely to repay the loan on time, thereby lowering the lender’s risk.
Often lenders require potential borrowers to be employed in their latest job for at least one year before they can qualify for a personal loan. Similarly, your place of employment also matters. If you hold a government job or are employed at a reputed private organisation, then you’re likely to be offered personal loans at lower rates of interest and favourable terms.
Tip #6: Leverage your Relationship with the Lender
Generally, lenders offer discounted interest rates for existing customers. This is because they are aware of your credit history and fiscal responsibility. Also, since the bank knows the customer well, they consider existing customers a lower risk than new borrowers. To retain creditworthy customers, banks offer incentives like special interest rates for existing customers. Check with your lender to see if you’re eligible for any discounts on interest rates for new loans.
Tip #7: Keep an eye out for Special Offers
Just like consumer durables, lenders run seasonal offers on their popular loan products. For example, most lenders offer attractive loan offers during the festival seasons – Navratri and Diwali. When you apply for loans during these promotional offers, you can enjoy various benefits like – special reduced interest rates, processing fee waiver, etc. Making use of these festive loan offers can help you save on a personal loan’s interest costs.
Tip #8: Read the Fine Print
Before you sign up for a personal loan, make sure to carefully analyse the terms and conditions. Check if there are any extra processing fees and other hidden charges that you’re not aware of. Also, make sure to read the prepayment terms so that you can avoid nasty surprises later on if you decide to foreclose the loan.
Even a slight reduction in the loan interest rates can help you lower your loan burdens significantly. Follow the suggestions listed here and ensure that you land the best personal loan deal. To quickly check the different loan offers matched to your profile, make sure to visit a trusted loan marketplace like CreditMantri.