Whether making any big-ticket purchases, people might be interested in taking a personal loan with low-interest rates. Depending on where they are borrowing from, they can negotiate the interest rate of such loans. This post is a guide including some tips on how to guarantee a lower interest rate.
- Maintain a good credit score
A borrower will have a greater chance of obtaining a personal loan with low-interest rates if they have a credit score of 750 or higher. One may do this gradually by paying all of their bills, loans, and other obligations on time each month. It can also be advantageous to keep their credit utilisation ratio under the 30 per cent cap.
Additionally, keeping a good credit mix of both secured and unsecured loans, verifying the CIBIL Report for errors, and other actions will help achieve a personal loan with low-interest rates.
- Length of credit history
Another two-part component that affects the borrower’s score is the length of their credit history. The first component is just how long one had credit access. The score will increase as one gains more loan management experience. The average age of the borrower’s loan accounts is covered in part two. It’s detrimental to one’s credit score if they often open and close credit card accounts. Long-term loan relationships are what lenders prefer to see on credit reports.
- Types of credit
It’s one thing to know how to manage a credit card, but lenders also want to know how the borrower handles other kinds of debt. The credit score will benefit from having a greater variety of debts, such as mortgages, credit cards, auto loans, and a personal loan with a low-interest rate.
- Maintain a good repayment history
The borrower must pay the entire amount due on the credit card each month rather than just the minimum payment to pay off the debts. Additionally, one ought to keep track of other loan and EMI instalments. One will stand a higher chance of convincing the lender to get a personal loan with low-interest rate if they have a solid track record of EMI repayment.
- Compare interest rates
The borrower can compare and select the best alternative among numerous lenders by going to an online financial marketplace based on their needs and eligibility. One can also ask their existing lender if they have any promotions going on over the holiday season or if there is any way to get a personal loan with a lower interest rate.
- Check the interest calculation method
Even though the lender offers the borrower a personal loan with low-interest rate, they might have to pay a higher interest amount when the loan term is up. This is because each lender uses a different formula to determine interest. They might be given a loan with a fixed interest rate, in which case the interest is calculated on the entire loan amount throughout the loan. Another option is a reduced interest rate, in which case the interest is calculated on the outstanding principal and the principal is gradually reduced by the EMIs.
- Credibility of employer
People who work for reputable or global corporations are more likely to be offered favourable agreements. Because their employers are better able to guarantee a consistent job, the lenders determine that the borrower is more likely to have a reliable income to make loan payments on time. As a result, it will be simpler to obtain loans with reduced interest rates.
- Borrower’s employment history
The borrower’s ability to create a good credit score, which somewhat affects interest rates, will be aided by having a decent job, keeping residence stability, and maintaining a good FOIR (Fixed Obligation to Income Ratio). FIOR is the criterion that lenders most frequently employ to assess a borrower’s loan eligibility. Few banks demand that they have a minimum two-year employment history, including at least one year with their present employer. Lending institutions see people favourably and provide them with a better chance of receiving loans with reduced interest rates if they work for state or federal government agencies.
- Offer collateral
A secured personal loan is one technique to ensure a reduced interest rate. Personal loans that are not secured by an asset are not secured. If one chooses not to repay the loan, the lender will have nothing to sell to make up its losses. If one chooses to obtain a secured personal loan with low-interest rate, one must put up something of value as collateral, such as a car or the remaining value of a CD. The asset the borrower pledges as collateral may be taken back by the lender if they are unable to satisfy the monthly obligations. This lowers the risk for the lender, enabling them to set a lower interest rate.
- Debt burden
The borrower’s credit score’s component measuring their debt load is divided into two components. The first is just how much money they owe overall. Their credit score will decline as their debt increases because lenders don’t want to give loans that will put the borrower in financial trouble. The second is the proportion between the borrower’s outstanding balance on all credit lines, including credit cards, and their combined credit limits. Better results come from a smaller ratio.
- Good existing relationship with the bank
A personal loan with low-interest rate and with better terms of service may be easier to get if the borrower already has a good working connection with a bank or lender. This is because the bank or lender is aware of the borrower’s responsible credit behaviour and that there is often less risk involved than when lending to a new customer.
Before choosing a lender, one should constantly review the service terms provided by different lenders. Make sure to consider the loan length, fees, loan amount, and other factors in addition to the provided interest rate while making the choice. If one has taken out too many loans, one might not obtain a good offer. If the CIBIL score is less than 700, the application may potentially be refused. Maintaining a credit score makes one eligible for loans with lower interest rates.
Visit Piramal Finance to learn more about products and services available on Personal Loans.