Personal loans are becoming a preferred funding option for borrowers since they can be used to meet a variety of funding requirements. For instance, it can be used to finance higher education, wedding expenses, debt consolidation and the likes. However, several financial institutions bring these advances at varying rates. Also, several factors come to play in deciding the lending rate on a personal loan. One can thus make essential adjustments to the factors in question to avail the most affordable rates for loan repayment.
Consequently, applicants can follow the below-mentioned tips to get lower interest personal loan.
Ways to avail of personal loans at low rates
- Take measures that help build a high CIBIL score
CIBIL score is a numerical summarisation of one’s credit report, comprising all past credit activities. Lenders refer to this score to assess the creditworthiness of a borrower and his/her ability to repay an advance. A high CIBIL score thus suggests that a borrower is financially responsible and can make repayments on time.
Accordingly, lending institutions also consider borrowers with high CIBIL score to be less risky and are willing to provide personal loans at competitive interest rates. Therefore, apart from knowing what is credit score, borrowers can implement some or all the measures given below that can help boost their credit score –
- Avoid applying for too many credits with multiple lenders successively.
- Limit credit usage to 30 – 40% of the total credit amount available.
- Repay your loan EMIs and make credit card bill payments in time to build a positive repayment history.
- Opt for a healthy mix of secured and unsecured credits.
- Check your credit report periodically to make sure there are no mistakes hurting your credit score. In case there are any, apply for their rectification with the concerned authority immediately.
● Keep a check on your debt-to-income ratio
The debt to income ratio is a percentage of an individual’s fixed monthly debt payments to his/her total monthly income. It is calculated by dividing the monthly debts such as credit card bill, rent, loan EMIs, etc. that an individual needs to pay by his or her total income. A low debt-to-income ratio suggests improved repayment capability, whereas, if this ratio is high, the borrower may face difficulty repaying the loan.
Lending institutions consider a borrower’s debt-to-income ratio and offer lower interest personal loans to individuals with higher repayment capacity. Hence, before applying for a personal loan, applicants should calculate this ratio and take appropriate steps to lower the same.
- Compare lenders
Before applying for a personal loan, applicants should compare the interest rates offered by various lending institutions. It will enable them to avail lower interest personal loan. They can also use a personal loan EMI calculator to check the most affordable EMI option for them. To use the calculator, they need to enter the following details –
- Required personal loan amount
- Interest rate applicable
- Preferred repayment period
After entering the above information, the calculator will display the total interest payable, the total loan amount and EMIs payable. Borrowers can customise the loan amount and repayment period to plan their loan EMI repayment better.
- Look for seasonal offers
Lending institutions also provide lower interest personal loans during festive seasons and such other specific timelines during a year. Borrowers should try to take advantage of such seasonal offers since it will enable them to save a considerable amount on interest payment.
Moreover, lending institutions such as Bajaj Finserv also provide pre-approved offers to facilitate hassle-free processing of finances that also saves time. Apart from personal loans, these offers can be availed on several other unsecured credits such as business loans, credit cards, etc. To check your pre-approved offer, you only need to enter essential contact details like your name and contact number.
- Know about different interest rate types
Borrowers opting for a personal loan can choose from either fixed or floating interest rates. The latter is linked to benchmark rates such as RLLR or MCLR. The floating interest rate will thus increase or decrease according to changes in the benchmark rate.
On the other hand, the fixed interest rate stays the same throughout the loan period. With this incidence in place, borrowers can frame a proper financial plan. In contrast, even though floating interest rates are volatile, they can enable borrowers to save a considerable amount when the loan market experiences subsequent rate cuts.
Furthermore, before signing the final loan agreement, applicants should know about the fees and charges applicable to their personal loan. Factoring them in when calculating the total cost of the loan helps make an informed decision regarding the advance.