A personal loan offers access to quick cash. You can use the proceeds for any personal reason, may it be a medical exigency or vacation abroad. The best thing about opting for a personal loan is it does not require any security or collateral. As a personal loan is unsecured in nature, the processing time is low. However, lenders consider it as risky than secured credit options. This translates to a relatively higher personal loan interest rate. Thus, it is necessary to review different personal loan options, especially the offered interest rate, before zeroing on any lender.
Check out ways to lower your personal loan interest rate
For an existing personal loan borrower
- Choose personal loan balance transfer option
Personal loan balance transfer is a process where you can transfer your outstanding balance of your existing personal loan to another lender. This option is often selected to opt for a lender offering a lower personal loan rate to reduce the overall loan burden.
For example, assume you clicked on the personal loan apply button for a loan of Rs 20 lakh, two years ago at 15 percent per annum for six years with an EMI equaling Rs 42,290. Presently, your outstanding amount for personal loan is Rs 14.96 lakh with the remaining tenure of 4 years. Now, suppose if you take up personal loan balance transfer at 11 percent p.a. for the rest of the tenure i.e., 4 years, your personal loan EMI would fall to Rs 38,665.
You can compute this easily using a personal loan EMI calculator, available online. Upon adding details like loan amount, repayment tenure, personal loan interest rate on the calculator, you can get the results instantly in the form of loan EMI, overall interest payable and overall payment (interest + principal). Note that as personal loan transfer is considered a new loan application, the new balance transfer lender may levy processing charges, administrative fees etc. when processing the loan. Thus, you must consider factoring in the associated costs before availing the personal loan transfer facility. Go for this facility only if your savings on interest considerably outweigh your cost on the balance transfer facility.
For a new applicant
- Build a good credit score
Your lender checks your credit score to understand your credibility. Lenders usually consider a credit score of 750 and above to be good for approving your loan application at lower personal loan processing fees and interest rate. In case your score is not good, you can fix this. However, you cannot fix this overnight.
Begin by reviewing your credit score, to see if there is any error in your report and get it corrected instantly. Ensure to maintain a CUR (credit utilization ratio) of 30 percent or less on your credit cards. Ensure to pay your EMIs by the due date to keep your score on the higher end. If you are a co-signer or guarantor of a loan, ensure to monitor it for any missed payments. In case of a missed payment, your score will also be impacted.
Make sure to always follow these steps for a good credit score. Having a poor score may either make you an ineligible candidate for loan or allow approval for loan at a higher personal loan interest rate.
A personal loan is unsecured in nature; thus, its interest rate tends to be more than secured loans. In case you are looking to place an application for a personal loan or have already an ongoing personal loan but at a higher interest rate, ensure to follow the above-mentioned solutions. While a decrease of 1%-2% rate looks small, this still converts to a significant savings over the long term.