Follow These 5 Tips To Avail Personal Loans At Lower Interest Rates

The borrowing costs of your loan primarily depend on the personal loan interest rates offered by the lender. Banks and non-banking financial companies (NBFCs) set the interest rates for their personal loan applicants based on their cost of funds, net interest margins, etc., and the credit risk assessment of their loan applicants. Here are 5 ways in which personal loan applicants can avail personal loans at lower interest rates:

Build or Maintain Higher Credit Scores

Lenders usually prefer approving personal loan applications of individuals having higher credit scores, i.e. 750 and above. Banks and non-banking financial companies (NBFCs) are also more likely to offer preferential interest rates on personal loans to such applicants.

Prospective applicants having lower credit scores may either face personal loan rejection or the lender might set higher personal loan interest rates while approving their loan applications. As you may need a personal loan at short notice during emergencies like financial/medical exigencies, you should maintain higher credit scores to increase your loan eligibility.

The first step towards maintaining higher credit scores is to fetch credit reports at periodic intervals. This will allow you sufficient time to initiate corrective measures to improve your credit scores.

They should also assess their credit reports to identify the error(s) or incorrect information in their reports or any fraudulent credit activities made in their names. Any such issues should be communicated immediately to the lender and the respective credit bureau for correction. A rectified credit report can improve your credit score and thereby, improve your chances of availing of personal loans.

Avoid making personal loan applications with multiple lenders within short durations

Lenders fetch their personal loan applicants’ credit reports from credit bureaus to ascertain their creditworthiness. Credit report requests initiated by lenders are considered hard inquiries. Credit bureaus reduce your credit scores by a few points for every hard inquiry.

Hence, making multiple such inquiries within short periods can lead to a steep decline in your credit score, which thereby reduces your chances of availing personal loans at lower interest rates. Instead, you can visit online financial marketplaces to check and compare personal loan schemes of multiple banks/NBFCs before making the final loan application. Credit bureaus consider such credit report requests as soft inquiries, which does not impact credit scores.

Check with your existing lender(s)

Some lenders offer personal loans to their existing customers at preferential rates. Many banks/NBFCs also offer pre-approved personal loans to a select group of their existing customers having good credit profiles. Lenders usually offer concessional interest rates on such pre-approved personal loan offers.

Therefore, anyone seeking personal loans should first check his/her existing lender with whom he/she shares a deposit or lending relationship. The personal loan interest rates and other features offered by such lender(s) should then be used as a benchmark to compare personal loan offers from other lenders.

Compare Interest Rates offered on Personal loans by Multiple Lenders

The personal loan interest rates offered by lenders are usually dependent on their loan evaluation process and risk factors. Therefore, the personal loan interest rates may also differ from one lender to another. Hence, prospective applicants should compare the personal loan offers of multiple lenders before making the final loan application.

Loan applicants can visit online financial marketplaces to compare personal loan offers from multiple banks/NBFCs based on their interest rates, loan amount, tenure, disbursal time, processing fees, prepayment charges, etc. Doing so will help personal loan applicants select the best possible offer in terms of interest rates, disbursal time, fees, etc.

Avoid Frequent Job Changes

Lenders offering personal loans consider employment stability while assessing loan applications. Frequent job changes reflect both income and career instability, thereby increasing the credit risk of the lender. Therefore, personal loan lenders usually reject the loan applications of those switching their jobs frequently or sanctioning their loans but at higher interest rates.

Some banks/NBFCs also require their salaried personal loan applicants to have at least 6 months to 1 year of service in their current organization. Therefore, those seeking personal loans should avoid changing their jobs to increase their chances of availing of personal loans.