Personal loans provide a flexible solution to meet planned and unplanned needs without any collateral. Lenders make this facility available by charging an interest rate on the loan amount, which becomes your borrowing cost. To keep your costs on the lower side, try to secure the best rates.
While all lenders have internal policies and benchmark rates that dictate the personal loan interest rates you get, they also depend on many other factors, such as:
- Your income
- Credit score and history
- Loan terms
- Relationship with the lender
Keeping these things in mind and understanding how to leverage them will help you get affordable interest rates easily. So, read on to know the secrets to borrowing more affordably.
Build a High Credit Score
Since this is an unsecured loan, the risk for the lender is higher, and therefore, your credit score plays a significant role. It gives insights into your borrowing and repayment behaviour, based on which the lenders decide your interest rate.
Having a high credit score showcases your ability to repay the loan responsibly. As such, lenders are more likely offer competitive interest rates if you have a high score.
Check Your Eligibility
Apart from your credit score, how well you meet the lender’s eligibility criteria also determines the interest rates you will get. So, remember to always check your eligibility with your preferred lender before applying.
Meeting the required eligibility criteria will support your case when requesting an affordable interest rate. If you don’t fit the criteria, you may have to settle for a lower loan amount or a higher interest rate.
Avoid Applying Multiple Times
Applying frequently for credit in a short span of time may indicate a desperate need for funds. The lenders may assume you do not have sufficient income. This can adversely affect your repayment capacity and, thereby, the interest rates you can get.
Moreover, lenders check your credit score every time you apply for a loan or other types of credit. This results in a ‘hard enquiry’, which can temporarily affect your score. While one hard enquiry here and there does not have a severe impact, several enquiries in a short period can. So, avoid applying frequently.
Showcase Income Stability
Lenders offer a low interest rate to applicants with a stable job profile working in reputable organisations. This showcases that you have regular income to pay the EMIs on time, which decreases the lender’s risk. So, ensure you can prove your repayment capacity with a good and stable income source.
Opt for a Shorter Tenure
Opting for a longer tenure may be tempting, as you can pay your loan comfortably with lower EMIs. However, with a longer tenure, lenders will increase your interest rates. This way, choosing a shorter tenure helps secure affordable rates.
Be sure to choose a tenure with EMIs that fits your budget to avoid financial strain and ensure timely repayment.
Reduce Your Existing Debts
When you have a high number of debts or a high debt-to-income (DTI) ratio, it indicates that a sizable amount of your income goes towards repayment. Therefore, you have limited disposable income to afford another EMI.
This can make you a high-risk borrower, resulting in higher interest rates. Therefore, you must ensure that you have a low DTI ratio by clearing your existing loans. This will also reduce your credit utilisation ratio and help improve your credit score.
Compare Multiple Interest Rates
Comparison is one of the best ways to secure the lowest interest rates based on your eligibility and loan requirements. You can use an online personal loan EMI calculator to compare the interest rates of top offers and choose one that best fits your needs.
On the Bajaj Markets App, you can easily compare personal loan interest rates from top lenders. That’s not all. You can apply with an equally simple online application process and get the funds you need without any hassles. Download the app from Google Play Store or the App Store and apply now!