A personal loan can come in handy in times when you need money in an emergency. Personal loans are also disbursed fast, with minimum required documentation.
Being an unsecured loan, a personal loan comes with a high rate of interest between which can be anything between 11 per cent to 24 per cent per annum. So experts do not recommend a personal loan for buying expensive gadgets or to sponsor a holiday. However, there are times when one needs to go for a personal loan. There are certain things one can do to bring down the personal loan interest rates.
A High Credit Score Helps: A high credit score, usually between 750 to 900, reflects good credit behaviour of any individual. “It means they are conscious about their credit status, their expenditures and have demonstrated a history of timely repayments. Because of this healthy credit behaviour, they are offered personal loans at lower interest rates than others,” says Gaurav Jalan, Founder and CEO, mPokket, an instant loan app. So, work on your credit score and try to keep it above the healthy 750 level.
Use Your Own Bank: First look at what rates your existing bank is offering. Having a pre-existing relationship with a bank or with a lender can sometimes be advantageous when applying for a loan. “Banks that know you and your financial history may be more willing to offer you favorable terms, such as lower interest rates or higher loan amounts. Additionally, having an existing relationship with the bank may make the loan application process faster and more convenient,” says Rohit Garg, Co-Founder and CEO, Olyv, a personal loan platform.
In fact, when you use your bank that has your salary account, the bank would have proof of a regular income and how much money you withdraw every month, based on which you may get a lower interest rate.
Negotiation Helps: It is possible to negotiate personal finance interest rates with a bank, although the success of such negotiations can depend on various factors.
“Banks may be open to discussing interest rates if you present a strong case. This could include having a high credit score, a history of timely payments, and possibly quotes from other institutions offering lower rates,” says Sameer Singh Jaini, Founder, The DigitalFifth, a fintech consultancy firm.
It can be advantageous to negotiate toward the end of the month or quarter, as banks are often more eager to meet their lending targets during these times. While not all negotiations will result in lowered rates, approaching your bank with a well-prepared argument can increase your chances of securing a more favourable interest rate.
Shop Around: Just like anything else, when going for a personal loan, spend time on comparing interest rates offered by different lenders. “Comparing offers from multiple lenders can also lead to better rates. Many financial institutions provide initial rate quotes online without a hard credit check, which allows for comparison without impacting the credit score,” says Jaini.
Check How Interest Is Deducted: Interest rate may be calculated in different ways, so a lower interest rate is not always beneficial. In some cases, the loan may be at a flat rate where the interest will be charged on the full loan amount throughout the tenure.
On the other hand, when it is a reducing interest rate, interest is charged only on the outstanding principal. So availing a loan at a fixed interest rate can be costlier, even though the quoted interest rate is lower. This is something you need to be aware of
