7 Ways to Get the Best Rates on Personal Loans
Everyone has borrowed a loan or at least owes someone money. You do not have enough money and you need to get your project moving – you borrow. We cannot deny this fact; it is part of human nature. Questions such as where do I get a personal loan, how much is enough for the purpose you are borrowing, and how much will I pay back are pertinent questions you should ask yourself.
While lenders want a maximum return on their money, borrowers want to get more and pay less. No one will want to go for a 16% interest rate when someone else is offering a 14%. It makes a huge difference. So how do we get the best rates on personal loans?
TIP 1: Shop Around For the Best Rates before You Borrow
Almost everyone is familiar with this step. It is a good way to start looking for low-interest rate personal loans. You should shop around for different lenders, ask them for their information, and do comparisons that will help you to make a sound decision.
TIP 2: Watch Your Credit Score
Personal loans are usually disbursed quickly with minimum documentation required. Moreover, lenders do not usually ask for collateral. This is where credit score plays an important role.
A credit score shows your history of financial transactions. Since personal loans are unsecured loans they are considered to be of high risk. Bearing this in mind, lenders can easily grant a personal loan to people with a good credit score.
You will also get a rebate on the interest rate if you have a good credit score. This will lower your loan interest rate. So you need to take care of your credit score as well as have a high CIBL score.
TIP 3: Maintain A Good Repayment Record. Pay Your Loan On Time.
Paying your loans on time will boost your credit score. This will help you build a good repayment history that every lender likes. You will have an easy time negotiating your best borrowing rate when the lender thinks you have an excellent repayment habit.
TIP 4: Beware Of How Your Lender Calculates Your Interest Rate.
Mathematics is perhaps the most boring subject we ever had in school. People still find it hard to deal with figures in the real financial world which makes them vulnerable to scams. When it comes to borrowing it is not about the interest rate figure that matters; it is the financial story that it carries along.
Lenders will usually charge you interest in two ways- a flat interest rate or a reducing balance interest rate. So it is often good to check on the method of calculation of interest rate when borrowing. Most people end up paying higher amounts than they expected because of their miscalculations.
The flat interest rate charges a uniform interest rate on the principal sum throughout the loan tenure while the reducing balance rate calculates the interest rate on the outstanding principal. Getting a personal loan at a reducing balance method of interest, therefore, will be cheaper than getting a flat interest rate personal loan.
TIP 5: It Is Not a Must to Get a Personal Loan from the Bank
Every time someone talks about lending, borrowing, and interest rates all of us think about banks. People think about banks in the flash of a personal loan thought. It is good to know that there are lenders outside the brick-and-mortar setup. Even more important is that most of them offer better loan rates than banks.
If you search online, you will find several digital lenders who offer the best rates possible. You can easily get a personal loan from these FinTechs. They have liberal eligibility criteria.
TIP 6: If It Must Be a Bank, Build a Good Relationship
But people are afraid of new things and they like to play by the rules. Getting personal loans from the bank would be a nice option still. However, it will be better if you have a good existing relationship with the bank.
Having a good relationship with the bank will ensure that you get a personal loan at a discounted rate of interest plus other service benefits. This is because your lender is aware of your credit behavior and you would be less risky compared to a new customer.
TIP: 7 Having a Good Employment History Is Also Important
Finally, most lenders will want to see a stable source of income before they give you a personal loan. Two years of service with the current employer is usually the bare minimum and your rate may reduce if you have stayed longer. Additionally, government employees and those working in bigger corporations tend to get favorable rates because they are seen to be less risky.
The Bottom Line
From afar, these tips and practices might seem simple. Yes, they are, but they are not easy to practice. However simple they are, they will make it easier for you to get a personal loan at the best rate possible to ease your burden of borrowing in the short term and in the long term.