9 Ways to Get Lower Interest Rate on personal loan

Personal loan is the ideal credit in strument to deal with any kind of financial crisis as they come with no pre-determined end use, do not require any collateral/security, are disbursed quickly, require minimum documentation and so on.

Ways to Get Lower Interest Rate on personal loan

1. Maintain a good credit score

   A score closer to 900 is generally considered to be a good score. Having a good credit score increases your ability to secure new credit and it also enables you to get the desired loan amount with the desired repayment tenure at reasonable rates of interest. Usually, people with a higher credit score are able to get a lower personal loan interest rate on their borrowing. A high credit score indicates responsible credit behavior and higher creditworthiness. You can maintain a good credit score by making timely payments of your debts and dues, maintaining your credit utilization ratio within the 30% limit, maintaining a balanced credit mix, and avoiding simultaneous loan inquiries with multiple lenders which increases the number of hard inquiries on your credit report (and shows you to be credit hungry), etc.

2. Maintain a good repayment track record

   Try to pay your loan EMIs and credit card bills in full and on time. This helps you maintain a good history of repayment which in turn will help you negotiate better rates of interest on personal loans with the lender.

3. Compare interest rates offered by different lenders

   If you meet the personal loan eligibility criteria of multiple banks, it is always a good idea to visit an online financial marketplace and compare the different offers. This can help you secure the best deal.

4. Look out for Special offers

   When applying for a personal loan, always look out for special offers such as those offered during festive times. During the festive season, banks often launch attractive schemes offering lower than usual personal loan interest rates which will eventually help you save on the loan repayment expenses in the long term.

5. Good existing relationship with the bank

   Having a good existing relationship with a bank/lender may help you secure a personal loan at a discounted rate of interest along with better terms of service. This is because the bank/lender is aware of your responsible credit behavior and there is relatively a lower degree of risk involved as compared to lending to a new customer.

6. Check the method of interest calculation

   It is always advisable to check the method used by a particular lender to calculate the interest payable on personal loans. Often loans may be offered at a lower rate of interest but you may end up paying a higher interest amount at the end of the loan tenure. Lenders offer loans either at flat interest rate or at reducing interest rate. In case of flat interest rate, interest is calculated on the entire loan principal throughout the loan tenure. Whereas, in reducing balance method, the personal loan interest is calculated only on the outstanding principal. Therefore, availing a personal loan at a reducing interest rate could cost you less than availing a personal loan at a flat rate of interest and vice versa.

7. Have a good history of employment

   Having a long and stable history of employment can not only enhance your personal loan eligibility but also help you get lower rate of interest on your personal loan. Lenders often require applicants to have at least a two year overall history of employment including one year with their current employer. People employed with reputed public and private organisations, central or state government, etc. are often offered personal loans at more favourable terms and at lower rates of interest. This is because these applicants are believed to have stable jobs and income and therefore less likely to default on their borrowings.

   While these might at first glance seem like simple tips and practices, they can take you a long way in securing a personal loan at a lower rate of interest and reduce your overall burden of debt in the long term.

8. Consider your Employment history

   Securing a good interest rate on a Personal Loan largely depends on having a solid credit score. This means keeping your Fixed Obligation to Income Ratio (FOIR) in check and maintaining a steady job. Before approving a loan, banks usually ask for various documents, including your salary slip, which shows your work history. Typically, they prefer applicants with at least two years of employment, including a year with their current employer. People working for the government or related sectors might have an edge. Your financial stability and job reliability play a big part in determining the interest rate you'll get on your Personal Loan.

9. Employer’s Credibility

   If you work for a big company or a well-known organization, you might have better options for Personal Loans. This is because lenders see these employers as more reliable, meaning they believe you'll have a steady income to pay back your loan on time. So, being employed by a reputable company can increase your chances of getting good loan deals.

Which is the Best Personal Loan at Low Interest Rate?

Personal loan interest rates can change based on various factors, like your age, credit history, income, and the lender's risk assessment. Generally, having a higher credit score means you might qualify for a lower interest rate. Freo (Formerly MoneyTap) offers personal loans starting at a competitive interest rate of 1.08% per month (13% per annum). Plus, approved customers can access credit limits of up to ₹5 Lakh. One great thing about Freo (Formerly MoneyTap)'s offer is that you won't be charged any interest until you transfer the approved loan amount to your bank account.