A personal loan with a low rate of interest is one of the most effective choices to address most instant financial demands. No matter whether it is a construction project, a child’s wedding, or an extended vacation, you can meet your requirements using a personal loan. There are zero usage restrictions on the amount borrowed. However, repaying such loans may not be pleasant for your funds if the rate of interest is high. Few strategies can considerably reduce your interest rate on personal loans and the fund that you must pay.
What is a personal loan?
A personal loan is a fund borrowed at a particular rate of interest and repaid over a specific time period. Personal loans by nature are unsecured so you do not require pledging any collateral or security. You may use the loan proceeds to fund your instant requirements, whatever they may be. As an outcome, availing of a personal loan in the form of an SBI online loan or in regular form is a good choice to meet all your financial demands. Remember that before you avail of a personal loan from any of the lenders, it is a must to compute your EMI and overall loan cost. You can do so using the SBI personal loan EMI calculator or EMI calculator from any other lender. Ensure to opt for the lender offering the lowest interest rate for the amount you require a loan. Do not unnecessarily go for a higher loan amount that you do not require. This unnecessarily increases your EMI and your overall loan cost.
A personal loan is most probably one of the considerable liabilities, thus you must adjust your funds in a way that you may be able to repay by the due date. As an outcome, if you require a loan, your aim must be to secure it with the lowest interest rate possible.
Important strategies for lower personal loan interest –
Before you get the approval for a personal loan, the following are a few of the parameters that lenders factor in –
- Loan proceeds you have requested
- Your repayment capacity
- Your employment credibility
- Firm you work with
- Based on such assessment, the lender provides you with a personal loan, which is available at a predetermined rate of interest and service terms
Listed here are some of the strategies for reducing your personal loan interest rate –
Strong credit score
Repaying your debts as well as obligations on time ameliorates your credit score. A credit score of 750 and above enhances your possibility of availing of a personal loan along with a low rate. Few crucial strategies include –
- Maintain a strong credit combination of unsecured and secured loans both.
- Check your credit report on a regular basis.
- Keep your CUR (credit utilization ratio) less than 30 percent.
- Avoid any direct credit card or loan application.
- Make sure you timely repay your co-signed or guaranteed loan to preserve the credibility of the guarantor or co-signer and the primary borrower’s score.
Repaying your debts by the due date
Repay your credit card bill in full and repay your monthly debts. Also, you must repay other loans on time. This would assist you to get a better deal on any other loans you avail of in future. If you hold a strong EMI repayment history, you hold a higher chance of negotiating for a lower interest rate on personal loan and lender’s terms.
Your work experiences
Before approving the loan, a lender checks the following details –
- Your DTI (debt to income ratio)
- Job and housing stability
- At least 2 years of employment, including at least 1 year with your current employer.
Such factors allow you to maintain a strong credit score and influence your personal loan interest rates. Those applicants that are employed by central or state government, quasi-government or PSU get exemptions from lending institutes for a personal loan. Note that your financial stability and reputation also impact your loan rates.
As mentioned earlier, applicants working with central or state government, quasi government organizations, or PSUs are favoured by the lending institutions for loan disbursement. Employees working for blue-chip, reputable enterprises, and international companies might even negotiate for better terms and conditions. Lenders expect you to hold a constant income, and a credible job and thus, which would ensure that you would repay the loan by the due date.
Relationship with lender
In case you hold a solid relationship with the lender, you might be able to low an interest personal loan on suitable terms and conditions. The lender is aware of your good credit behaviour. Note that there would have been an extremely higher risk if you were a new applicant.
Assess the procedure for computing interest
You might pay more interest post loan term despite the lender providing you with a cheaper rate of interest. This is because computing the overall interest to be repaid differs between lenders. The rate of interest offered on a personal loan can be a floating or fixed interest rate. Fixed interest rate means where the lending rate is fixed for your repayment tenure while the floating interest rate is where there are quarterly revisions. The fixed-rate is generally 1 – 2 percent higher than the present floating rate. However, while the fixed rate stays the same throughout the loan tenure, the floating rate of interest continues to fluctuate based on the benchmark rates as per the RBI’s repo rate.
Ensure to keep a watch on special offers
During festive periods and holidays, lenders usually tend to provide plans with a lower personal loan rate. It can be beneficial to avail of a loan during such times as this considerably reduces your overall loan cost. At times, processing loans and administrative fees may be available at nil rates from PSUs. In case you are looking to avail a personal loan to renovate your home during festivity or buy a consumer durable product, then doing so during festivities may save a lot.
While these might come across as basic practices and suggestions at first, these can go a long way in saving a lot on your interest cost and lowering your entire debt burden over the long term.