A personal loan is an unsecured loan. It is the reason behind personal loan interest rates being higher than other loan interest rates. The interest rate charged on a personal loan depends on the personal loan eligibility criteria of the borrower.
Interest rates on a personal loan determine the cost of the loan that you borrow. Thus, it is crucial that you know the factors that influence your interest rates when you apply for a personal loan. CIBIL score is the most important of all the factors.
There are many ways in which you can avail a personal loan at a better interest rate. Read on to know more!
Easy Tips to Avail a Better Interest Rate for Your Personal Loan
1) Improve your CIBIL score
CIBIL score is the first impression of a borrower on the lender. A good CIBIL score is beneficial for a lower interest rate. If you have a good CIBIL score, you can get your loan approved at a lower rate of interest. On the other hand, a lender may not offer a lower interest rate loan to an applicant with a poor CIBIL score. You can improve your Credit score by making timely payments for your credit card bills and existing loan instalments.
2) Go for a higher EMI
The Equated Monthly Instalment (EMI) of your loan is inversely proportional to your loan interest rate. Higher the EMI, lower the interest rate and vice-versa. If you have a good monthly income and can afford to pay high monthly instalments, you should go for a loan with higher EMI. It will help you enjoy a better rate of interest.
3) Improve your negotiation skills
Good negotiation skills often prove to be helpful. If you have excellent negotiating skills, you can bargain with the lender for a lower interest rate on your personal loan. Therefore, you should try to enhance your negotiating skills.
4) Go for a shorter loan tenor
Banks and financial institutions offer short term loans at a lower rate. It is because of the risk factor involved in a long term loan. If you are applying for a personal loan online, you can go for a short tenor loan for a lower interest rate. But you should always consider factors like monthly instalment and loan amount before making any decision.
5) Prefer a floating interest rate
A floating interest rate is the interest rate that varies with market fluctuations. A fixed interest rate remains the same throughout the tenor of the loan. Fixed interest rates are a bit higher than the floating interest rates. You should always opt for a floating interest rate for a short term personal loan. It is more profitable as the variable interest rate gets adjusted by the time you repay the loan.
6) Research online
You can also search online for how to reduce personal loan interest rates. Many lenders offer better interest rates on online portals.
7) Calculate the total cost of the loan
It is significant to compute the total cost of the loan borrowed. Merely opting for a lower interest rate is not always beneficial. If processing charges and the penalty for late payment or pre-payment are high, you should think twice before accepting the offer.
Now that you know the tips for availing a better interest rate on your personal loan, you can use them when you apply for a personal loan.
Nishant is a passionate financial blogger and financial adviser. He has been serving society as a financial adviser for past 6 years. He has amazing solution for every finance related query. He shares his financial tips and tricks on Loantrivia.com