5 Tips to Get Personal Loans at the Lowest Interest Rates
A personal loan is an unsecured loan that is easy to apply, hassle-free to repay. However, since you don’t secure the loan with collateral, you may find that the interest rate is on the higher side.
1. Build your credit score higher:
Applying for an unsecured loan with a credit score of 750 or more is always beneficial. This is because a higher credit score makes you more financially credible in the lender’s eyes. However, if you have a low credit score because you haven’t made timely repayments on your existing loans, credit card payment or due to an error in your credit report or you have too many on-going loans, it’s best that you improve it before applying for a personal loan. Higher the credit score will help you to get a higher amount of personal loan at the lowest interest rate.
2. Check for hidden or higher processing fees:
A personal loan with a low interest rate is ideal, if the loan doesn’t carry a range of hidden charges. As some lenders try to make up for a low interest rate by charging a hefty processing fee. Other fees like those for foreclosure, part pre-payment and cheque bounce may also be on the higher side. Even though these may be one-time charges or costs you may feel you may not incur, their deduction from your sanction will considerably impact your wallet.
3. Check how interest rate is calculated:
If a lender offers you an interest rate that seems too good to be true, try to see the entire picture. Often, the promise of better terms maybe because the rate offered is a flat rate that doesn’t consider the repayment of principal and interest amount over the course of the loan tenure. Such a rate could mean a higher return on your loan overall. Before taking the final decision, read all the terms and conditions carefully and make an informed decision.
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4. Repay your debt before applying for a personal loan:
One factor that lenders may consider when you apply for a personal loan is your debt-to-income (DTI) ratio. DTI is generally calculated by adding up all your monthly debt obligations and dividing the sum by your monthly before-tax income.
If your DTI is high, you might be considered a risky borrower and offered a higher interest rate. So again, if you have time and it makes sense for you, consider paying down some of your existing debt, especially your credit card balances, before applying for a personal loan.
5. Check the Annual Percentage Rate (APR):
APR, the annual percentage rate is an important thing which one should look for when going for a personal loan. APR quotes your cost as a percentage of the loan amount that you pay each year. To get the most out of APR, it’s critical to understand how it works. Sometimes your lender provides an APR, but you might need to calculate APR for yourself.
For example: If a customer takes a loan of ₹ 10,000 for a period of 3 months, at an annual interest rate of 11.99% APR, then the customer will pay an EMI for 3 months of ₹ 3,468 per month. Total payment over 3 months will be ₹ 10,403 (including principal and Interest).
Interest rate depends on the tenure and amount of the loan. Longer terms and higher loan amounts will typically translate to higher APRs. This is because there is a higher risk of paying back the loan. Get instant quotes on Interest Rates & EMI on personal loan and your CIBIL score at StashFin.