Banks are usually charged higher rates on personal loans. This is because it is collateral-free loan. While taking this type of loan, you should research through which bank or any other lender is offering the loan at the least interest rate. Banks usually make loans based on the creditworthiness of the borrower. So through this article, we are going to tell you how to get a better interest rate on a personal loan.
How to get better interest rate on a personal loan?
If you want to get a personal loan at a lower rate of interest, then you should keep in mind the following when applying for a personal loan –
Maintain a high credit score
Credit score matters a lot when taking a personal loan. The banks determine the stability of your credit and money through the credit score at the time of granting the loan and based on this, approve your loan. If you have a good credit score, banks see it as a guarantee of a refund and this also increases the chances of getting a loan sanctioned. So always keep your credit score good. Let us know some ways, with the help of which you keep your credit score high –
Keep credit utilization ratio below 30% – If you have a credit card, it should have a good credit report. No, your loan may be declined. You should pay attention to your credit utilization ratio and never use more than the maximum credit limit. You should always try to use only 30% of the maximum credit limit. This helps in maintaining a good credit score.
Check your credit report – By checking your credit report again and again, you will get correct information about it. If you notice a mistake or unexpected change in the report, you can take the necessary steps to improve it. It also helps you make better financial decisions. You can inquire your credit score through online aggregators and websites.
Do not apply for more than one loan at a time – If you apply for more than one loan at a time, it seems that your income is low and you are in great need of money. Along with this, as a result of every loan application, the bank will ask you and after every inquiry your credit score will be reduced by 5 to 10 points. So if banks reject your loan application, then it is better to wait a few months before applying a new application.
Maintain a good repair history
If your repayment history is good, that is, you have been paying the borrowed money on time, then it will be easy to get your loan approved. In this, the history of repaying your previous debts and credit card dues etc. is seen. If your repayment history is good, then your credit score is high. Therefore you should pay your credit card bills and EMI on time. Remember the repayment dates of these loans and pay the loan before the due date. This gives you the feeling of being a responsible debtor and helps you maintain a good credit score.
Compare different banks
Before applying for a personal loan, you should consider its purpose and utility, as these loans charge a higher rate of interest, this can increase the debt burden on you. So before applying, consider the total cost and utility of the loan. Before applying for a loan, you should check the interest rates and eligibility criteria of various banks online. Also, compare loan term, processing fees etc. After this, select the same bank which is offering the loan at the least interest rate.
Learn the method of calculating interest
Most banks initially offer low interest rates, but eventually customers have to pay at a higher interest rate. The reason for this is not the correct knowledge of the method of calculating the total interest payable. You should keep this in mind when applying for a personal loan. Because in case of decreasing interest rate, interest is charged on the remaining principal, while in flat interest rate interest is charged on the entire amount. So if you take a personal loan at a flat rate, then it will cost you more than a lower interest rate.
Income and job
Loan applicants working in blue-chip companies, reputed multinationals or Maharatna and Navratna companies are more likely to approve loans. Because the banks feel that the income of these borrowers is fixed and hence they are better able to repay the loan than others. Before giving loan, banks also check job information as well as residential stability and income ratio etc.