Lenders usually set interest rates on personal loans based on the applicant’s credit score, net occupation profile, monthly income, and employer’s profile. The higher interest rate on personal loans results in higher interest costs and EMIs. Here are a few tips that can help consumers avail of personal loans at lower interest rates, reducing their EMI burden.
Maintain a high credit score
Checking an applicant’s credit score is one of the preliminary steps lenders take when assessing a personal loan application. This is because an individual’s credit score helps lenders determine his creditworthiness. Applicants demonstrating responsible credit behaviour tend to have higher credit scores. Thus, lenders also prefer offering personal loans to applicants having a credit score of at least 750. Given that most lenders follow risk-based pricing, they offer lower personal loan interest rates to applicants having higher credit scores.
On the other hand, those with lower credit scores have lower chances of getting approval for their personal loans. To such applicants, lenders also charge higher interest rates to compensate for the higher credit risk. Thus, maintaining a high credit score at all times may help prospective borrowers avail of personal loans and other credit options at lower interest rates.
Consumers should regularly check their credit scores and, if found low, must take appropriate steps to improve them. Healthy credit practices like making your EMI and credit card bill payments by their due dates, avoiding applying for multiple credit cards and loans within a short time, etc., can help improve your credit score. Clerical errors or inaccuracies in your credit report or fraudulent credit activities in your name can also cause your credit score to drop. To avoid this, individuals should regularly check their credit reports from all credit bureaus to identify such issues. If any such issue is identified in the credit report, it should be reported immediately to the concerned credit bureau and the bank/NBFC for rectification. Once the credit report is rectified, the individual’s credit score should also improve.
Enquire about offers from lenders with whom you have an existing banking relationship
Many lenders offer lower interest rates on personal loans to customers having active deposits, loans, or credit card accounts with them. Hence, those planning to avail of personal loans should first check for personal loan offers by the lenders with whom they have an existing banking relationship. Prospective borrowers can then use the interest rates and other personal features offered by such lenders as a benchmark to compare the personal loan interest rates and other features offered by other lenders.
Many lenders also offer pre-approved personal loans to their existing customers having high credit scores. This is another reason prospective personal loan borrowers should approach their lenders first when shopping for a personal loan. Such pre-approved personal loan offers have instant disbursals and might be offered at lower interest rates, making them ideal for individuals facing an immediate financial crunch.
Compare offers from different lenders to avail the best offer
Due to varying credit evaluation processes and risk factors, the interest rates charged on personal loans may also vary across lenders. Hence, prospective borrowers should compare personal loan offers from different lenders to avail of the best offer. For this, prospective borrowers should visit online financial marketplaces.
These online financial marketplaces allow consumers to compare personal loan offers from multiple lenders based on their interest rates, loan amount, processing fees, and repayment tenure. Besides these features, consider comparing the prepayment fees, foreclosure charges, and disbursal time before applying with any lender.
Read More: Must Follow Rules When Taking a Personal Loan Online
