Most of the lenders today abide by the concept of risk-based pricing for determining the personal loan interest rate. This means higher rates are levied if you have higher credit risk while lower rates are charged if you have lower credit risk. This concept is usually applicable in case of unsecured credit options like personal loan where lenders have no underlying securities to rely upon in the case of any loan default.
Go through 3 ways to avail personal loan at lower interest rate:
- Maintain a strong credit score
At the time of personal loan application evaluation, lenders consider your credit score. If you have a higher credit score of 750 and above, you are usually looked upon as credible and thus have higher loan approval chances at lower personal loan rate. On the other hand, if you have a lower score of less than 750, you are viewed as a credit irresponsible individual, who may default in future and thus lenders may either reject or charge higher rates to make up for the higher involvement of credit risk.
Given the need for personal loan can arrive anytime, checking your score right before loan application is not useful. Thus, you must develop the habit of checking your credit report regularly. Doing this will help you take the required actions to maintain or ameliorate your score. Periodical credit report check will also help you identify wrong information, if any, in your report and address them to the concerned bureau or lender for rectification. A corrected credit report can enhance your score automatically.
- Consider amongst multiple lenders
Based upon your personal loan eligibility and requirement, you must consider visiting the online financial markets to strike comparison and select among multiple lenders providing personal loans. Moreover, you must also check with financial institutions with whom you share an existing relation. This is because your existing financial institution may offer the loan at a relatively lower rate and better conditions. Once you have checked with your existing institution, keep the rate offered by them as a benchmark to compare rates with other lenders.
- Review the interest calculation method
Despite lenders offering lower interest rates on personal loans, you might end up repaying higher interest component towards the end of the tenure. It is often due to their interest calculation method. Thus, before clicking on the personal loan apply button on the selected lender’s site, ensure to understand their interest calculation method.
Lenders usually offer loans on either reducing interest rate or flat interest rate method. In the case of flat interest rate method, the interest outgo payment is calculated based on the full personal loan amount throughout the loan tenure. However, reducing rate method’s calculation is based on the outstanding principal where the loan EMIs subsequently lower the principal component. Thus, opting for a flat rate method can cost you a lot more than a personal loan available at a reducing rate method.
Ending note
Once you have chosen your lender, ensure to calculate the loan EMI based on your required loan amount, available tenure and personal loan interest rate using the online personal loan EMI calculator. Having a fair idea about your personal loan EMI as per your repayment capacity will help you meet your EMI obligations with ease without burdening your finances.
