Photo: Pexels
Photo: Pexels

How to get the best interest rates on personal loans

Since personal loans are unsecured, credit score plays a huge role in determining the interest rate. You could also take advantage of festive offers to obtain discounts on personal loans

Photo: Pexels
Photo: Pexels

Personal loans can be lifesavers on many occasions. If you are experiencing a temporary financial setback, a personal loan will come in handy to put your financial status right back on track. Though there are plenty of benefits associated with personal loans, most products are typically notorious for their high interest rates. The main reason behind the high interest rate of personal loan is that it is unsecured. The risk factor associated with personal loans make them costlier than other loan products in the market.

Personal loans are available easily, and they require minimal paperwork and processing. Since these loans are unsecured, you don’t have to worry about pledging a collateral to obtain this loan. It is true that the interest rates for personal loans are a little higher than that of other products. However, there are certain ways in which these interest rates can be minimised. By lowering the interest rates by a few percentage points, you can save a lot of money in the long run. Here are a few ways for you to get the best interest rates on personal loans.

Maintain a good credit score

Since personal loans are unsecured, credit score plays a huge role in determining the interest rate for your loan. Your credit score is based on your past credit performance. If you have defaulted on your earlier loans, it is likely to be extremely tough for you to get personal loans at attractive interest rates. You can maintain a good credit score by paying your bills on time. Also, make sure that you are not making multiple loans applications to banks. With every loan application rejection, your credit score is bound to get even worse. If your credit score is poor, focus on fixing it before you apply for a personal loan.

Do your research

When it comes to personal loans, there are plenty of companies operating in the Indian market. The interest rate does not remain the same across the market. It varies from one lender to another. It is not a good idea to choose a lender only because of low interest rates. Consider the lender’s reputation in the market and service quality. Also, check the instalment amount you have to shell out every month. Almost all lenders have a personal loan EMI calculator in their websites. You can use this to check your monthly payment. If all other terms are favourable, opt for the service that has the lowest interest rate. Considering the overwhelming number of options available in the market, it could take a while to narrow down the ideal lender. Make sure that you are patient with your research when finding personal loans with best interest rates.

Take advantage of festive offers and discounts

The recently concluded festive season witnessed a massive amount of offers and discounts on personal loans. Most lenders in the market compete aggressively during this time to sell their products. You could take advantage of these offers by regularly checking for the best offers on personal loans. If you are able to get a discount during this season, you can save a lot of money on the overall interest amount paid. Information about these offers can be easily found online. There are various loan aggregators, such as BankBazaar, which offer the interest rates of all lenders in an instant. Check for the best loan offer you can get for your credit score and make a decision based on it.

Consider other credit options

This may not be relevant to a personal loan discussion, but you also have the option of considering other credit options in addition to personal loans. If you can arrange credit at a cheaper interest rate in another source, you can consider opting for that over a personal loan. For instance, pledging an asset could provide you access to cheaper loan options since this loan is secured. If you feel that the interest rates for personal loans are way too high, you can also explore other options in the market.

Before you apply for a loan, you must perform a quick personal loan eligibility check in the lender’s website. Interest rate must not be the sole focus when you decide to opt for a personal loan. For instance, check for other hidden charges and surcharges involved in the process. Also, check the pre-closure procedure associated with personal loans. Typically, most lenders charge about 2% of 5% of the loan amount as penalty if you decide to pre-close a personal loan before the end of its tenure. It is worth considering these charges before you make the final decision. By following the above mentioned process, you can get access to personal loans with the best interest rates in the market.