The interest rate offered on your personal loan can greatly influence the cost of borrowing. Even a small increment in these rates can cause your EMIs and interest cost to rise. Therefore, those looking for a personal loan should always try to avail personal loans at the lowest possible rates and to do so they can consider the tips below:
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Keep your credit score as high as possible
Many lenders use their applicants’ credit scores to set their personal loan rates. They tend to offer lower interest rates to those having higher credit scores, i.e. 750 and above. This is because high credit score of an applicant demonstrates his responsible credit behaviour, hence lowering credit risk for banks and NBFCs. Lending to applicants having lower scores, on the other hand, is considered risky, as applicants having such scores tend to lack financial discipline. Therefore, lenders charge higher interest rates when lending personal loans to such applicants.
As life is unpredictable, your need for a personal loan can arise anytime. Hence, you should always maintain your credit scores from all credit bureaus as high as possible. For that, you should keep a close eye on your credit scores. By doing this, you will not only gain sufficient time to take corrective steps for improving your credit score but also be credit ready when the need for a loan arises. You should also review your credit report regularly to identify any incorrect information or fraudulent credit activities in your name. Once an issue is identified, you should immediately report it to the respective credit bureau(s) and lender(s) for rectification. A rectified credit report may cause your credit score to increase by a few numbers, further increasing your chances of getting a personal loan and other credit options in future. Those having existing loan obligations, should making credit card bill and loan payments by their due dates to avoid reduction in credit score.
Also, while searching for personal loans, avoid applying with multiple lenders within a short period as this adversely impact your credit score and thereby, your chances of availing personal loan at lower interest rates. This is because every time you make a loan application, your lender pulls your credit report to assess your creditworthiness. This lender-initiated credit report enquiry is known as hard enquiry. Having such an enquiry on your credit report can cause your credit score to drop by a few points. Having multiple such enquiries within short period can lead to sharp reduction in your score. Instead, consumers should visit online financial marketplaces for loan comparison. Credit report enquiries made through such platforms are considered as soft enquiries and do not affect your credit score.
Get a quote from lenders with whom you maintain a banking relationship
Banks and NBFCs usually offer preferential rates on personal loans to their existing customers. Hence, those looking for the lowest personal loan interest rate should first get a quote from lenders with whom they are availing banking service. Interest rates and other personal loan features offered by such lenders can then be used as a benchmark to compare personal loan interest rates and other loan features offered by other lenders.
Many lenders extend pre-approved personal loan offers to their existing customers. As such loan offers are extended to those having good credit profiles, the interest rates offered might be lower than the usual personal loan interest rates. Moreover, pre-approved personal loans come with quicker disbursals and minimal to no document requirements, making them ideal for those requiring funds urgently.
Compare offers from multiple lenders to get the best deal
The loan evaluation process and risk factors differ across lenders. Hence, the interest rates offered on personal loans may also vary across banks and NBFCs. Therefore, when shopping for a personal loan offer, one should compare offers from as many lenders as possible. At online financial marketplaces, you can easily compare various personal loan offers based on various loan features such as their interest rates, loan amount, tenure, processing fees, etc. Additionally, you should also compare the prepayment charges, foreclosure charges and loan disbursal time before availing loan from any lender.
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