Personal loans
have become a widely used financial solution for individuals seeking quick
access to funds for various purposes, be it medical needs, home renovation,
education, or unexpected expenses. While personal loans are unsecured and
easily available, interest rates can vary significantly. Securing a personal
loan at an affordable interest rate can reduce the overall repayment burden and
make financial planning more efficient.
This article
explains steps you can take to get a personal loan with a lower interest rate
and ways to manage it effectively.
1. Maintain a Healthy Credit Score
One of the
first things lenders evaluate when deciding the personal loan interest rate is the borrower’s credit score. A higher credit score
reflects responsible credit behaviour and a disciplined repayment history.
Typically, a score of 750 or above is favorable.
To maintain or
improve your credit score:
·
Pay credit card
bills and EMIs on time
·
Keep your
credit usage below limit
·
Monitor your
credit report regularly for errors
A good credit
score not only increases your eligibility but also gives you better negotiating
power for lower interest rates.
2. Compare Offers from Different Lenders
Not all lenders offer the same personal
loan interest rate. Interest rates may vary based on lenders’ internal
policies, risk assessments, as well as borrower profiles. It is important to
compare offers from multiple banks and financial institutions before applying.
Online loan
comparison platforms allow you to:
·
Review interest
rates
·
Check
eligibility criteria
·
Compare
processing fees and prepayment charges
Taking time to evaluate
options help in selecting the right loan plan that suits your requirements and
offers affordable terms.
3. Choose a Suitable Loan Term
The tenure of
the loan directly affects the interest paid. The longer the tenure, the lower
the EMIs, but the interest paid in the long-run is higher. In the case of shorter
tenure, the EMIs are high but reduces the overall cost of the loan.
By balancing EMI affordability with the total
cost of the loan, you can choose a tenure that helps in managing repayments
efficiently. Many lenders let you
use online calculators to check EMIs before deciding.
4. Demonstrate Stable Income and Employment
Lenders
consider your level of income as well as employment stability in order to
determine repayment capacity.
To improve
eligibility:
·
Provide
detailed accounts of earnings (salary slips, bank statements, tax returns)
·
Add other
sources of income (freelance, rent)
·
Assure a steady
source of income and reduce unnecessary financial burdens
A strong credit
history shows less risk to the lender and can result in better terms.
5. Select a Loan with an Ongoing Banking
Relationship
If you already
have an established relationship with a bank, through savings, fixed deposits,
or earlier loans, your chances of obtaining a lower rate may increase. Banks
typically extend preferential rates to their loyal customers with a good credit
record.
In such cases,
pre-approved personal loan proposals can also be made with less documentation and
quicker processing. You can go to your bank first before searching in the
external market for tailor-made offers.
6. Don’t Apply to Several Lenders at Once
Applying for numerous loans simultaneously may
negatively affect your credit score as each application leads lenders to check
your credit report, and too many checks in a short period may lower your score.
Instead, seek
out pre-approved or soft-checked loan offers, which will not negatively affect
your score. Select the most favorable option before submitting a formal
application.
7. Take a Personal Loan with Guarantor or
Co-applicant
If your income
or credit is insufficient, applying for a personal loan with a co-signer (a
parent or spouse) may be an option. Having a co-signer with a stable income and
good credit improves the overall profile and can lead to better loan terms.
Others may
accept a guarantor, which provides additional security for the loan and can
assist in reducing interest rates.
8. Negotiate if You Have a Strong Profile
If you have a
good credit score, stable employment, and a reliable income, do not hesitate to
negotiate the interest rate with the lender. You may not always get a
reduction, but some lenders may offer better rates to high-credit borrowers,
especially those with a previous repayment history.
Additionally,
look for seasonal offers, tie-ups, and promotional campaigns that may offer
temporary interest rate discounts or waived processing fees.
Conclusion
Availing a
personal loan at an affordable interest rate is possible with the right
approach. Maintaining a good credit score, proving a stable income, and
comparing lender options are essential steps toward getting favourable terms. It
is also important to evaluate the total repayment amount, loan tenure, and
additional charges, rather than focusing solely on the interest rate. By
staying informed and advance planning ahead, borrowers can access the funds
they need while managing costs effectively.
