How to get low-interest rates on personal loans? Here are 9 key tips

Personal loans have become an essential financial tool for many, offering quick access to funds for various needs—be it medical emergencies, weddings, or travel. However, one of the most crucial factors to consider when taking out a personal loan is the interest rate. A lower interest rate can save you significant money over the loan tenure.

Here are some tips on how to secure a low-interest personal loan in India, along with an overview of current interest rates.

Understanding personal loan interest rates

Personal loan interest rates typically range between 9.99% and 44% per annum. The actual rate you receive depends on various factors, including your credit score, income, existing debts, and the lender's policies. Lower interest rates are usually available for borrowers with excellent credit histories and stable incomes.

Tips to secure low-interest rates

Maintain a good credit score

Your credit score plays a significant role in determining the interest rate on your personal loan. A score above 750 is generally considered good and can help you negotiate better rates. Here are some tips to maintain a good credit score:

• Pay bills on time: Ensure that all your credit card bills and EMIs are paid promptly.
• Limit credit inquiries: Avoid applying for multiple loans at once, as each inquiry can impact your score.
• Keep credit utilisation low: Use less than 30% of your total credit limit to maintain a healthy credit profile.

Compare lenders

Not all lenders offer the same interest rates. Use online comparison tools to assess different banks and NBFCs (Non-Banking Financial Companies). Look for promotional offers and discounts that may be available. Make sure to compare the annual percentage rate (APR) rather than just the nominal interest rate, as APR includes fees and other charges.

Opt for a shorter tenure

While a longer tenure may lower your monthly EMI, it usually results in a higher total interest payment. Opting for a shorter loan tenure can reduce the overall interest paid, as lenders typically offer lower rates for shorter periods.

Use a co-applicant

If you have a family member or friend with a strong credit profile, consider applying for the loan together. A co-applicant can improve your chances of getting a lower interest rate, as lenders view the combined income and creditworthiness as less risky.

Consider your income level

Lenders are more likely to offer lower interest rates to borrowers with a stable and high income. Presenting proof of a stable job or a significant salary can strengthen your application. If you are self-employed, ensure that you have substantial income documentation to showcase your financial stability.

Pre-qualify for loans

Some lenders allow you to pre-qualify for a loan without affecting your credit score. This process gives you an idea of the interest rates you may be offered. Pre-qualifying can help you find the best loan terms before you formally apply.

Negotiate with the lender

Once you have a loan offer, don’t hesitate to negotiate the interest rate with the lender. If you have received better offers from competitors, let the lender know. They may be willing to match or offer a better deal to secure your business.

Leverage existing relationships

If you have an account with a bank or financial institution, you may be eligible for preferential rates. Existing customers often receive better terms due to their established relationship with the bank.

Avoid unnecessary add-ons

Many lenders offer add-ons like insurance or processing services that can inflate the cost of your loan. Carefully review these options and consider opting out if they are not essential. This can help keep your effective interest rate lower.

Conclusion

While this article provides tips on securing low-interest personal loans, it is important to note that personal loan interest rates can vary significantly based on economic conditions, lender policies, and individual financial profiles.

Currently, personal loan interest rates are higher than expected, particularly for borrowers with less-than-ideal credit scores or unstable income. Always conduct thorough research and consult with financial advisors before making borrowing decisions. Your specific circumstances will ultimately determine the rates available to you.