When times are tough and you are desperately looking for funds to meet an urgent need, a personal loan can be the perfect answer to your prayers. And if you can manage to get a low interest on the loan, there is nothing like it. From funding your children’s education and financing their marriage to expanding your small business, you can fulfil all your needs with a personal loan. However, making it affordable or getting a low interest on personal loan can be challenging. Since low interest rates help reduce the borrowing cost besides making the repayment process more convenient, we will tell you how to manage the same.
How to get low interest on personal loan?
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Work with an esteemed organisation
A factor that can help you get a better personal loan interest rate is your employment or income history. Lenders examine your employment history when evaluating your application to see if you can maintain a steady income and, thus, repay the loan easily.
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Seasonal deal advantage
Every year, financial institutions come up with seasonal loan offers. These offers are the best way to seal a deal as per your own ease. These are cost-effective, and the interest rates are comparatively lower than the standard rates on normal days.
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Apply with your existing lender
If you are a good borrower who is paying off EMIs on time, your lender might have an attractive deal for you. With more financial information in hand, lenders consider negotiations made by their existing customers. Furthermore, many financial institutions provide exclusive deals and rates to existing customers as a reward based on their transactions.
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Maintain healthy credit history
Your credit history plays a crucial role in determining your loan eligibility. Customers with poor creditworthiness are considered risky by lenders. A customer with strong credit history gets a loan at a cheaper interest rate. On the other hand, one with poor credibility ends up getting no loan or loan at a higher interest rate.
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Compare lenders
In your quest for affordable personal loans, a little research can work wonders. Rate of interest on personal loan varies from lender to lender. Always compare the rates across a variety of lenders available in the market. And in the process, you may find a personal loan at a pretty low interest rate.
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Always check the method of interest calculation
The interest on your loan is calculated in a variety of ways by various lenders. A lower interest rate does not always mean a lower amount of interest. You should look at the method of interest calculation to figure out how much interest you will have to pay on the loan. You can also use an online calculator available on the website of various lenders to calculate your personal loan interest rate. You can also calculate the interest rate using a mathematical formula, but this method may take some time.
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Go for balance transfer
If you are burdened with a high-cost loan, you can go for the refinancing option by taking out a loan at a lower cost. Such type of loan is known as a balance transfer loan that comes with a lower interest rate. You can also avail a top-up loan on your high loan amount.
Factors affecting interest on personal loan
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Income
Your income plays a crucial role in determining interest on personal loan. Usually, a person with a high disposable income has better repayment history than one with a lower income. A better repayment record means a better loan deal.
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Debt-to-income ratio
Assume you work for a well-known organisation and earn a good salary, but a large portion of your income is spent on debt repayments. In this situation, all your previous debts would surely have an effect on your future personal loan interest rates.
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Relationship with lender
When lending to a valued borrower, lenders are more lenient with interest rates. When a lender sees your loyalty towards them, they are more likely to offer you a better deal than they will to new customers.
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Default history
If a lender discovers defaults in your credit history, they can charge you with a very high interest on personal loan. In the worst scenario, they might even reject your application form. Most lenders prioritise borrowers who have zero EMI defaults in the last twelve months.
Apart from the above, your employment status and credit history also play a crucial role in determining your personal loan interest.
Conclusion
Personal loans have become quite popular these days as they are quickly processed and can be used in myriad ways. However, when you get a low rate of interest on personal loan,you can take better control of your financial aspects. As such, following the above-mentioned tips will help you make the most out of your personal loan.
