Personal loans are inherently unsecured loans, which makes them popular options in times of need when people need immediate cash to meet expenses. This is also the reason why higher interest rates are charged for these types of loans. People take personal loans for vacations, weddings, education and various other needs, including reasons like debt consolidation. Such loans have been helping people meet unexpected expenses and tide over bad times for decades.
If you want to take a personal loan, you should plan your expenses carefully after reviewing your monthly obligations and income. The new developments in technology have certainly made taking a personal loan faster and easier, but this has not ensured a low interest rate as the lender sets the interest rates keeping in mind certain fixed parameters. Below, we will discuss some of these parameters and highlight ways in which you can take out a personal loan at a low interest rate to ensure a smooth flow of money on a day-to-day basis.
Avoid multiple loan applications
If you apply for a personal loan and receive a denial, don’t be too quick to submit another application. Inquiries and multiple credit applications are data collected by credit reporting agencies to determine your creditworthiness. Too many serious inquiries and multiple credit applications mean many rejections, which diminishes the confidence of the lender who doubts your repayment abilities.
If your personal loan is still approved, it will be at the cost of a higher interest rate to cover the higher risk represented by your credit score and credit report. Avoid applying for multiple personal loans to get better terms and interest rates.
Apply from a Known Lender
The bank where you receive you salary, most obviously becomes the first institution you identify when you look for a personal loan. Here, the banker obviously knows you personally, has a record of your financial status, and holds your relationship in good stead. This goodwill proves to be the deciding factor for lower interest rates.
Therefore, when you apply for a personal loan from a known lender, you have the advantage to negotiate a better rate of interest, and better terms and condition for your borrowing. Existing customers are regularly offered special discounts on interest rates. Don’t forget to enquire about such offers.
Compare lenders
Don’t just look at your local bank if you can’t get a good deal there. Invest some time in research and find a lender that will help you save your money. Compare different personal loans offered by different lenders. Review and compare lender offers to find the best interest rates you can qualify for, paying attention to details like loan terms that play a role in determining repayment rates.
Look for deals and offers
Look out for limited time offers that will give you access to lower interest rates. Festivals and holidays are such times when lenders offer such deals to generate goodwill among consumers in the market. These offers, also known as seasonal offers, are often communicated to potential loan seekers via SMS, email, phone call and other mass media. They are time-limited offers that must be claimed before they expire.
Maintain a Good Credit Score
A good credit score portrays a person who practices good fiscal discipline. Expressed as a three-digit number from 300 to 900, a credit score describes the person’s creditworthiness. To be a creditworthy person, you must have a good credit report, which depicts timely repayment of loans, low outstanding loan balances, good credit utilization ratio, and a prudent debt to income ratio. Should your credit report fulfil all these conditions, your credit score will inadvertently be high. This in turn would entitle you to better and lower rates of interest on your personal loans. Thus, a higher credit score makes way for you to negotiate a better rate of interest. Therefore, make sure you practice good fiscal discipline, repay your loans in time to ensure low outstanding loan balances, balance your credit utilization ratio, and keep a check on your debt to income ratio for lower interest rates on your personal loans.
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