Many seek personal loans when they need funds for a wedding, buying a car, education or an emergency etc. However, the interest rate is one thing they want to minimise so that they can get the required money at the lowest cost possible.
Interest rate is the most significant cost borrowers pay to avail of loans. The lenders determine it based on the applicant’s credit rating, income, DTI (debt-to-income) ratio, and other factors.
Those looking for a loan at the lowest interest rates will find the tips mentioned here extremely valuable.
- Compare Lenders
Different NBFCs offer varying interest rates according to their loan policy and the applicant’s loan credibility. While looking for a loan, it’s crucial to get quotes from different lenders and check the interest rates they are offering. Compare them and shortlist the one offering the lowest interest rate.
However, the interest rate is not the only factor to look for in a lender. Don’t forget to check their processing fees, additional charges, customer service, etc., for the best loan experience.
- Pay Off Existing Loans
Lenders may charge a higher interest rate if the applicant is already under heavy debt and has a higher risk of missed payments and loan default. To reduce the risk, the applicant must consider paying off their outstanding balances and loan EMIs before applying for a new loan. The lower the financial obligations are, the lower the interest rate they can avail.
- Show Income and Employment Stability
Most lenders have a minimum duration requirement for the borrower to be employed in the current job. Those looking for a loan for salaried individuals must show income and employment stability to get a good interest rate.
An individual working with the same employer for the past few years shows income stability, resulting in a reduced chance of default. Therefore, avoid changing jobs while looking for a loan.
- Don’t Forget to Mention Any Income Source.
The applicant’s income plays a vital role in determining their interest rate. A higher-income means a lower risk of default, due to which the lender agrees to offer the loan at a lower interest rate.
In that case, the applicant must try to show maximum income sources that improve their eligibility and reduces interest. Income sources include the applicant’s monthly salary and any income from part-time jobs, hobbies, rent, investments, etc.
- Reduce Credit Utilisation Ratio
The credit utilisation ratio is the average percentage of available credit one uses each month. High CUR indicates that the applicant is credit hungry and depends on credit for most expenses.
Reducing credit card usage is the best way to decrease this ratio, which eventually encourages lenders to offer a lower interest rate.
- Opt for a Shorter Loan Tenure
Since most lenders offer flexible loan tenures on personal loans, the selected term dramatically affects the borrower’s total interest outgo. Opting for a shorter loan tenure may make the EMIs bigger in amount, but it reduces their number and eventually the interest payments the borrower makes.
So, while avail of a personal loan, carefully opt for the loan tenure to get the best interest rate.
Considering these factors while taking a loan reduces the interest burden and keeps EMIs manageable. The key is reducing the DTI ratio, improving credit scores, and comparing lenders to get the best interest rate and save money.