Your personal loan borrowing cost is primarily dependent on the interest rate offered by the lender. Lenders set the interest rates for personal loan applicants primarily on the basis of their cost of funds, net interest margins, etc. as well as the credit risk assessment of their personal loan applicants. Here are 5 tips for personal loan applicants to avail personal loans at lower interest rates:
Increase or Maintain Higher Credit Scores
Banks and non-banking financial companies (NBFCs) usually prefer offering personal loans at concessional interest rates to applicants having higher credit scores, i.e. 750 and above. Those having lower credit scores may face personal loan rejection or the lender might approve their personal loans at higher interest rates. As your need for availing personal loans may arise unexpectedly, especially during financial or medical emergencies, you need to maintain sufficient credit scores so that lenders consider you as credit ready for granting personal loan approval.
Hence, you should fetch your credit reports at periodic intervals to allow yourself sufficient time for taking corrective steps to improve your credit score. You should also review your credit report to identify error(s) or incorrect information present in the report or any fraudulent credit activities in your name. Any such issues should be reported immediately to both the lender and the respective credit bureau for rectification. A rectified credit report will improve your credit score and consequently, increase your chances of availing personal loans.
Avoid applying for personal loans with multiple lenders in a short duration
Whenever a lender receives your personal loan application, it fetches your credit report from the credit bureau to ascertain your creditworthiness. Any lender-initiated credit report request is considered as a hard enquiry. Credit bureaus reduce your credit score by a few points for every such hard enquiry. Therefore, making multiple such enquiries within a short period can lead to a sharp dip in your credit score, which reduces your chances of availing lower interest rates on your personal loans. Instead, consumers should visit online financial marketplaces to check and compare the personal loan schemes of multiple lenders before applying for personal loans online through such platforms. Credit bureaus consider such report requests as soft enquiries, which have no negative impact on your credit score.
Check with your existing lender with whom you have deposit, loan or credit card accounts
Some lenders offer preferential rates on personal loans to their existing customers. Many banks/NBFCs also extend pre-approved personal loans to their select existing customers having good credit profiles. Lenders usually offer interest rate concessions on such pre-approved offers. Hence, individuals planning to avail personal loans should first check with their existing lenders with whom they share a deposit or lending relationship. The interest rates and other personal loan features offered by such lenders can then be used as a benchmark to compare with the personal loan offers of other banks/NBFCs before making the final loan application.
Compare Personal loan Interest Rates offered by Multiple Lenders
The interest rates offered by personal loan lenders are usually dependent on their loan evaluation process and other risk factors, which differ from one lender to another. Hence, the personal loan interest rates may also differ across lenders. Therefore, prospective applicants should compare the personal loan offers from as many lenders as possible. Visit online financial marketplaces where you can easily compare personal loan offers from multiple lenders based on their interest rates, tenure, loan amount, processing fees, prepayment charges, loan disbursal time, etc. Doing so will help you select the best personal loan offer in terms of interest rates, total borrowing costs, loan disbursal time while fulfilling your conditions for availing personal loans.
Avoid Frequent Job Switches
Lenders consider the employment stability of their personal loan applicants while assessing their loan applications. Frequent job changes reflect income and career instability, which in turn increases the lender’s credit risk. Therefore, lenders usually reject the personal loan applications of those who switch their jobs on a frequent basis or approve their loans at higher interest rates. Some lenders also require their salaried applicants to have minimum 6 months to 1-year of service in their current organisation for availing personal loans. Thus, those planning to avail personal loans in the near future should avoid job changes to improve their chances of personal loan approval at lower interest rates.