Personal loans are instant financing options that have helped many individuals in meeting their funding needs. These loans are specifically designed to address urgent money needs. They come with zero restrictions to end-use, easyaccessibilityand have simple eligibility requirements. Such attractive features have made instant loans a popular financing option. In addition to this, the advent of loan apps has made financing even simpler.
But one of the major concerns when it comes to personal loans is the interest rate. Because personal loans are unsecured loans, the interest rates on personal loans are often higher than other secured loans. But with smart financing tips you can avail a personal loan at a much lower interest rate.
Read on to discover 5 amazing strategies to secure a personal loan at a low interest rate.
Top 5 Strategies to Secure a Personal Loan at Low Interest Rate
Personal loans are infamous for having high interest rates. But with a little knowledge and financial awareness, you can avail a personal loan at a much affordable interest rate. Lenders are always looking for eligible customers who have stable income and exhibit disciplined borrowing and repayment track record. So, if you fall into the category of low-risk borrower, then you can negotiate with your lender for better terms.
Here are 5 such strategies that will help you secure a personal loan at low interest rates:
1. Apply with a high credit score
A credit score is a numerical indicator of your creditworthiness. This score helps a lender determine the risk associated with your application. In India, we have 4 major credit bureaus that assign credit scores based on the credit history. This score reflects your previous financial habits, borrowing traits and repayment records.
The major factors influencing your credit score are –
- Making timely repayment of loan EMIs.
- Paying credit card bills in full.
- Keeping the credit utilisation ratio under 30% and FOIR under 50%.
- Availing a balanced mix of credit.
- Avoiding making multiple loan applications in a short span.
If you have always been responsible towards your finances, then you would have a high credit score. This makes you a very suitable candidate for an instant loan. However, if your credit score has suffered in the past due to negligence or errors, then you can work towards improving your credit score.
Here are a few steps to improve your credit score:
- Close your on-going loan accounts.
- Consolidate your loans into one loan account.
- Repay your credit card bills on time.
- Maintain your credit utilization limit within 30%.
2. Compare available lending institutions in the market
Another smart way to avail a low interest rate on personal loan is to search the market for available lenders. Compare the rates levied on the loanby different lenders. You need to carry out an in-depth market research to check and compare lenders and find the best rates on your instant loan.
Download the best personal loan app andcompare the interest rates offered by different lenders. Make sure to check other fees and charges levied by the lender on the loan. Knowing the best interest rate in the market will also help you negotiate the interest rate with your preferred lender.
3. Choose between fixed and floating interest rate levy systems
When availing a personal loan, you need to select between fixed and floating rate levy systems for your advance. Typically, fixed rates are set a notch higher than floating rates to make up for market variations. Contrarily, floating rates can be a good option when the market rates are expected to go down as per the trend.
Floating interest rate is subjected to market conditions. But it has several benefits as well. When you choose a floating interest rate, you get the option of foreclosure of your loan without paying any fees. However, to avail a floating interest rate you must have the appetite for a fluctuating EMI every month. Floating interest rate can be typically beneficial for loans with short tenures. This is because the predictability remains high for a short duration than in the long run.
4. Leverage employment and income stability
You can also seek to avail a low interest rate on your personal loan by leveraging your employment status and stability. Individuals employed with a public/private sector company stand a better chance to negotiate for low instant loan interest rates. Similarly, if you have been employed for long and have a high income can negotiate well for low rates as well.
You must also check with the financial institution where you hold your salary account. They may offer you better loan terms and lower interest rates. The need for documentation is also minimalized as they already have your details. If you already have a loan account and you have been consistent with your payments then you can consult your existing lender too. Don’t forget to check out the interest rates offered by an online loan app.
5. Document all income sources
When processing your loan application, the lender pays critical attention to your monthly income. Based on your income, they determine your loan eligibility, loan amount and the interest rate levied on the loan. A higher monthly income will get you a loan at lower interest rate.
That’s why you must make sure to document all income sources. If you have additional income sources like rental income, income from investments, freelance income etc. then make sure to document these incomes. You will have to provide the documents supporting your income sources.
In conclusion, the interest rate mentioned by the lender on the lender’s website is not the final offer. You can negotiate with your lender if you have a good financial standing. You must know the factors that influence your interest rate and work towards improving them. Your credit score, income, and employment status, impact the interest rate levied on the instant loan.
In addition to these factors, you may also consider adding a co-applicant or opt for a secured personal loan to avail low interest on your loan. In case, you have already availed an instant loan at higher interest rate, then you can try renegotiating with your lender or opt for a loan transfer.
Keeping your interest rate as low as possible will increase your loan affordability. This will help keep your loan EMI manageable and keep your total interest pay outs low. In addition to this, choosing a short tenure or closing your loan account early can also help you save big on the interest.