A personal loan is
meant to meet the short-term financial needs of the borrower. They are meant
for the self-employed or salaried professionals who have a continuous source of
income. Most of the money lenders offer different interest rates on personal loans,
but there are other things to be considered in addition to these published
rates.
Here we are going to
discuss the factors that determine your ability to get the lowest interest rate
on personal loan. Most of the people are unaware of these factors which help to
avail best possible personal loan interest rates.
read this article to
know.
Things Useful To Reduce Personal Loan
Interest Rates:
1. Your credit history
Moneylenders are
really interested to know your credit history and your CIBIL score. With the
help of your CIBIL score, the moneylender can evaluate your creditworthiness.
You can avail the lowest rate of interest if you have a good credit score which
is 750 or above. You can even get the best possible rate of interest if you
have a higher income and the right amount of loan at the same time.
2. Tenure of the loan
Tenure plays an essential
part in securing the best possible rate of interest on personal loans. If you
choose the more extended repayment period, you might have to pay higher
interest rates, and if you choose a shorter tenure, you are about to pay a
lower rate of interest. You can check out your EMIs and the repayment tenure
with the help of a personal loan EMI calculator.
3. Get a co-signer
Some of the money
lenders who offer personal loans accept the co-signers during your application.
It would help if you introduced a co-signer who has an excellent credit history
and a reliable income which can help improve your chances of getting a
pre-approved loan or a loan at lower interest rates. In this case, the person
is guaranteeing your loan personally. The loan will also reflect the credit
report of your co-signer, which might potentially affect his/her credit history
and ability to borrow money in future.
4. Sign up for an autopay discount
Some money lenders
offer lucrative discounts if you sign up for automatic payments. The rationale
behind this is that if you are on autopay, you are more likely to make your
EMIs on time. Although the discount is small, generally around 0.25% of your
loan amount, you can save a lot on your interest rates. While signing up for an
autopay discount, you simply need to bear in mind that you have enough balance
in your account each month to cover the automatic payment. If you don’t and not
have the overdraft facility, the lender may charge you a penalty or a fee.
5. Use collateral
Most of us thought
personal loans as unsecured loans, which means that they don’t require any
collateral. But with some money lenders, you can secure your loan with a
vehicle, gold, home or even cash in your account. Secured loans are considered
as low risk because if you default, the lender can seize the collateral to
satisfy the debt. Secured loans generally come with a lower rate of interest.
But, secured loans may not be a good idea if you are not sure about your
ability to repay the loan in full. Losing your car, home or savings, when you
are already hurting can make things much worse.
6. Avoid fees
The annual interest
rates of a personal loan not only include the interest rate, but it also covers
its fees. The main charge that you need to avoid is the origination fee.
Depending on the moneylender, it can range from 1% to 8% of the loan amount. It
is generally deducted before you receive your loan amount. Some lenders don’t
charge the origination fee if you are qualified for the personal loan online approval.
7. Work with a credit union
Unlike money lenders,
credit unions are nonprofit organizations which are owned by their members. As
a result, these institutes generally return profits to their members in the
form of a lower rate of interest and fees and higher rates on deposits. The
only disadvantage about this is that such unions require you to join before you
can take out a loan. To have eligibility to join a credit union, you generally
need to live or work in their specific area and fulfil certain parameters.
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