Personal loans are unsecured loans that come at high interest rates. These are ideal for times when you fall short of cash for an expense and do not want to break your emergency fund. While personal loans are easy to avail and repay, their higher interest rates may be a set back for some.
Here are 4 tips that you can use to get the best interest rate on a personal loan:
1. Choose the right lender
While choosing a bank or financial institution to get any loan, one often compares the interest rates on personal loans. Apart from comparing interest rates, also look at the processing fees and other compulsory charges.
Further, it is important to choose the right kind of lender who is reliable in terms of their services. You do not want to lose money on hidden charges and waste time on lengthly paperwork processes. Find a reputable institution where you can avail an instant personal loan. These are approved within an hour and the loan is credited to one's account within 24 hours.
You also need to ask for a break up on how much your EMI could come up to. You can them compare the EMIs with different lenders and decide based on the one that fits your budget.
Some even offer additional features like flexible personal loans as well.
Most importantly, look at the processing fees as some lenders compensate for the lower interest rate with a hefty processing charge.
2. Maintain a good credit score
Lenders like customers with a good credit score. They often chase these customers with loan offers. For an unsecured loan like a personal loan, a credit score of at least 750 is considered good.
A good score can be earned by not defaulting on your existing loan payments or even something as simple as paying your utility bills on time. Stability in income and responsibly paying dues on time are desirable characteristics to achieve a good credit score.
If you have full-time employment with a reputable institution for over 2 years or have self-owned house that you rent out, it adds on in your favour as this assures the lender that you have regular income sources that will help you repay the loan in a timely manner.
With a good credit score, you can even bargain with the bank for a lower interest rate. Maintaining a good economic status will go a long way for future loans as well.
3. Interest calculation
If the interest rate is low and the personal loan is processed soon, there has to be a catch. Sometimes the lender could stretch the repayment tenure for a lower interest rate which is not beneficial for you.
A very long repayment period will mean the amount you pay as interest over the term will also be higher. It is important to keep both the interest rate and loan tenure low.
While the lender tries to sell a loan that gives it the best earnings, make sure to read all the terms and conditions on the personal loan before you agree to anything.
This becomes especially important considering the speed at which personal loans are processed these days, with attractive slogans saying "instant loans in 5 minutes," it is important to understand the implications that it will have on your savings.