One of the primary considerations as a borrower while availing of a personal loan is the interest rate. Being an unsecured mode of finance, you may find that interest rates for personal loans are on the higher side.
However, there are ways through which you can avail of a better interest rate for your personal loan.
Maintain a good credit score
A high credit score reflects your responsible behaviour when it comes to loan repayment. It gives your lender confidence in your loan repayment abilities. Thus, you stand a better chance to negotiate with your lender on the interest rate. You can maintain a high score by:
- Paying your bills on time
- Effectively managing debt
- Avoiding impulsive purchases through credit cards
- Making multiple applications for loans within a short span, in case of a rejection
Keep a close eye on your credit report to identify any suspicious activities. Generally, lenders and financial institutions prefer a credit score 685 or higher.
Additional Read: Things you can do to improve your personal credit score
Ensure a healthy loan repayment record
A healthy repayment track record entails paying all debts on time. It enhances your CIBIL score and builds trust worthiness among lenders. Bad loans affect lenders financial stability, and hence they shy away from lending those with an unhealthy repayment track record. Even if lent, the interest rates are high.
Compare different lenders
Comparing offerings from multiple lenders is an essential financial exercise. While banks served as go-to institutions for personal loans earlier, the emergence of non-banking finance companies (NBFCs) has changed the lending landscape. You can avail of personal loans from NBFCs, which may offer different terms and services than traditional banks. However, before zeroing in, it's essential to spend some time comparing offerings from different lenders to seal a profitable deal.
Additional Read: How Do Interest Only Loan Work
Read and understand the fine print
One of the most vital aspects of personal borrowing is reading and understanding the fine print. Going through the legal document carefully will help you guard against unpleasant surprises, such as an upfront interest charge and insurance premium, that will reduce your disbursed amount.
Look out for special offers
Lenders often come up with special offers on personal loans, particularly during the festive season. Though these offers are for a limited period, they give you a great chance to avail of a personal loan on better terms. You can sign up for updates on such offers and cash on the opportunity when presented.
The interest rate on personal loans has a say on monthly EMIs. Availing a loan at a competitive interest rate not only eases the EMIs but also ensures your expenses and other financial goals are on track.
Additional Read: Fixed vs floating interest rates
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