Simple Ways To Reduce Interest Rates On A Personal Loan
Loans, secured as well as unsecured, have 3 main components: the principal, the tenure, and the interest rate. The principal is the loan amount that you avail of, the loan tenure is the duration through which the repayment of the loan is done. Then there is the interest rate.
The interest rate is the charge you bear and pay to the lender on the principal amount. It is generally charged as a percentage of the principal amount. Secured loans tend to have lower interest rates as compared to personal loans.
The reason for this is that personal loans are availed without collateral or security. Hence, you as a borrower, tend to pay a higher personal loan interest rate.
Personal loan interest rates vary from lender to lender. For example, if you have taken an online loan from Finnable, the loan interest rate will start at 16% up to 26%. This may not be the case with other financial institutions.
Does this mean you cannot avail of a personal loan at a lower interest rate? There are ways to reduce interest rates. Here’s how to get a low-interest rate on your next loan:
Good CIBIL Score
CIBIL score determines the creditworthiness of a borrower. A high score means that you can repay your loan on time and the chances of default are minimal.
Lenders tend to reduce interest rates for borrowers who can show a good CIBIL score. Any score of 750 and above is considered to be a good score. This indicates good credit behaviour and proves that you have control over your finances.
Shorter Tenure
Though you have the option to choose a longer loan tenure, opting for a shorter loan term can help in reducing the overall amount you pay as interest. This will reduce the effective interest rate on the principal amount throughout the duration. Also, in a competitive lending market, lenders know that short-term loans are less likely to default and can be keen to disburse loans with low-interest rates.
Compare Interest Rates
Not every lender will disburse a loan at high rates. Before you apply for an instant loan, check the interest rates with various financial institutions. Conduct your due diligence and get various offers from them. Based on this, you can choose a lender that will give you the best rate on your loan.
Good History of Loan Repayment
Timely repayment of loans and zero defaults on your EMIs can help you get a low-interest personal loan. Having a good repayment history instills a sense of confidence in the lender and can aid in reducing interest rates.
Choose Better Deals or Offers
While you are comparing the best lender in the market, try to get a quote or offer from them. This will give you an idea of any special offer they are willing to bestow upon you. Also, most lenders tend to promote special offers and discounts during festive seasons. Keep a look out for them by subscribing to their newsletters or SMS.
Extra Repayments
One way to reduce interest rates is to make extra repayments. This repayment gets adjusted with the remaining EMIs and, hence, brings down the total interest that has to be paid.
Good Debt To Equity Ratio
Debt to income ratio is defined as a borrower’s repayment ability against their total gross income. You can derive the ratio by dividing your total EMIs by your gross income. Having a good debt to income ratio shows the lender that you have control over your finances which can help in getting low-interest rates.
Valid Documents(bank statement, salary slip, etc.)
Debt to income ratio is defined as a borrower’s repayment ability against their total gross income. You can derive the ratio by dividing your total EMIs by your gross income. Having a good debt to income ratio shows the lender that you have control over your finances which can help in getting low-interest rates.
Loan Amount
Taking a loan for a smaller amount can help in lowering personal loan interest rates. Since the amount is small, the lender knows that the loan will be repaid on time, hence reducing the chance of default
Conclusion
Lenders need proof to know that once a loan has been taken, it will be repaid in full and on time. Following these simple steps can help you in taking a loan with a low-interest rate. If you are availing of a loan for the first time, you will need to meet the eligibility criteria and submit all the documents with the application form.
If you do not have a good CIBIL score, you can still take a loan from Finnable as it provides personal loans without CIBIL as well. The entire process is online and you can apply via their loan app in 3 simple steps. You can apply for a wedding loan, a car loan, a home renovation, etc. through the app with just your KYC documents and income proof.
