The interest rates of personal loans can significantly impact your overall borrowing costs. However, the personal loan interest rates set by the lenders can vary widely for the same applicant due to factors like the lender’s net interest margins, cost of funds and the applicant’s credit risk assessment. Here are five tips to improve your chances of availing a personal loan at a lower interest rate:
Maintain High Credit Scores
Banks and Non-Banking Financial Companies (NBFCs) are more likely to approve loans and offer preferential rates to individuals having higher credit scores, preferably of 700 and above. Conversely, those with lower credit scores might face loan rejection or are charged higher interest rates.
Thus, having a high credit score can make a significant difference, enabling you to avail a personal loan quickly in times of financial or medical emergencies. Check your credit report at periodic intervals, to ensure that it reflects accurate information and also will give you sufficient time to take measures in case of any errors or signs of fraudulent activity.
Address any discrepancies by contacting both the concerned lender and the credit bureau to correct the errors. Rectified credit reports can lead to higher credit scores, which enhances your chances of availing a personal loan at better terms.
Check with Your Existing Lender(s)
Before applying for a personal loan, it’s important to check the loan offers from the bank(s) or NBFC(s) with which you have loan(s), deposit account(s) or credit card(s). Many lenders provide preferential interest rates on personal loans to their existing customers with better credit profiles. In some cases, they even offer pre-approved loans to their select existing customers.
Inquiring with your existing lender can serve as a benchmark for comparing rates and terms from other financial institutions. By using your current lender’s offer as a reference, you can better evaluate whether other lenders provide more competitive personal loan interest rates. This approach can help you to avail a personal loan at better terms.
Avoid Multiple Personal Loan Applications in a Short Time
When you apply for personal loans with several lenders within a short period, each lender performs a hard inquiry on your credit report to ascertain your creditworthiness. Each hard inquiry initiated by a lender can reduce your credit score by a few points. Multiple hard inquiries in quick succession can significantly reduce your credit score, making it harder to get your personal loan approved at lower interest rates.
To avoid this, consider using online financial marketplaces to compare loan offers from various lenders before applying. The requests made through these platforms are generally considered soft inquiries by the credit bureaus, which do not impact your credit score. By comparing loan options in this way, you can find the best deal without negatively affecting your credit rating.
Compare Personal Loan Interest Rates from Multiple Lenders
Personal loan interest rates can vary significantly between lenders due to the differences in their credit risk pricing processes. Therefore, the rate offered to the same individual may differ from one lender to another.
To find the best deal, applicants should compare personal loan offers from several lenders before applying for a loan. Visit online financial marketplaces to compare personal loan offers from multiple lenders based on their interest rates, loan tenure, amounts, disbursal times, fees and other charges. Avoid Frequent Job Changes
Lenders also take employment stability into consideration when reviewing personal loan applications as frequent job changes can reflect career and income instability, increasing the credit risk for the lenders. As a result, borrowers who change jobs frequently may face higher interest rates or even loan rejection.
Many lenders also require their salaried loan applicants to have been employed with their current organisations for at least 6 to 12 months to be eligible for making a personal loan application. To enhance your chances of loan approval and avail loan at better terms, an applicant should maintain job stability and avoid frequent employment changes.
Hina Abbasi is Editor and a passionate sports and entertainment content writer at WinnersMaze.com. Hina’s expertise spans across a wide range of sports, and interest in many TV shows allowing her to deliver insightful analysis and compelling stories that resonate with readers.