The interest rate charged on a personal loan can significantly impact the total repayment cost, making it crucial to get a competitive rate. However, finding the best loan deal can be challenging, and even minor fluctuations in the interest rate can increase or decrease the borrower’s financial burden.
To obtain the most favourable personal loan interest rates, there are several key considerations to keep in mind that can maximise your chances of securing an affordable loan that meets your needs.
6 tips to get the best personal loan interest rates
Have a Healthy Credit Score
As Personal loans are unsecured, lenders consider your credit scores. If you have a credit score of 750 or above are given a comparatively lower personal loan interest rate.
Whereas applicants with scores below 750 are typically viewed as high-risk borrowers, lowering their chances of getting a Personal Loan. As a result, lenders attempt to compensate for the greater credit risk by charging a higher interest rate.
Due to this, you should routinely check your credit score and improve it if it is low. Also, get any discrepancies corrected as well.
Maintain a low debt-to-income(DTI) ratio
The debt-to-income ratio is the percentage of a borrower’s total financial liability against their monthly income. So, a borrower with a high DTI ratio is less likely to have the funds to adjust another loan EMI. As a result, their risk of default is higher.
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As per financial experts, this ratio should be less than 30%. It means if you earn Rs.10,000 a month, your total obligation must not cross Rs.4500. But, if it is higher than this, you will face difficulties getting a loan. Moreover, in a situation like this, even if a financial institution approves a loan, it will charge a higher interest rate.
So, keeping a low debt-to-income ratio increases the chances of getting the best personal loan interest rate.
Apply for a loan with your current lender
Lenders usually provide personal loans to their existing clients at preferential interest rates. As a borrower searching for the best interest rates on personal loans, you should check with your current lender with whom you already have a working relationship.
You can then use a personal loan emi calculator and compare the loan offers from other lenders.
Furthermore, lenders provide pre-approved personal loan offers for their existing clients. Such loans are pre-approved and issued promptly with little to no documentation needed.
Provide all sources of income
Your income determines your capacity to repay the loan efficiently. For most lenders, it is an essential factor. Hence, ensure you have a reliable source of income if you want to get the best interest rate. Additionally, to further strengthen your credibility, you can add additional income sources like interest, dividends, rent, etc.
Apart from this, you can also apply for a joint personal loan. Here, the lender will consider both borrowers’ eligibility and repayment capacity; hence, the chances of securing a better interest rate will also increase.
Employment stability
Employment stability is another way to get the best possible interest rate on personal loans. If you are a salaried employee, you should be at least in that job for a year, and if you are a self-employed individual, then the business should be operational for at least a couple of years.
Fulfilling this demonstrates your economic stability and gets you a personal loan with a competitive interest rate, as lenders believe you are a lower-risk borrower.
Check out seasonal offers
Last but not least, check out seasonal offers to get the best possible interest rate. During Diwali, lenders usually offer loans at a lower interest rate and better terms, and getting a loan during this period can be a good option.
Conclusion
Since interest rate plays a crucial role in your personal loan repayment, finding a competitive one is essential. It lowers your financial burden and helps in paying off the loan easily. Before opting for a Personal Loan, do not forget to check its terms and conditions to avoid facing any issues in the future.
