Taking a personal loan can be a great financial solution when you need funds for emergencies, home renovation, medical expenses, or other needs. However, the interest rate on a personal loan plays a crucial role in determining your repayment amount. If you manage to get a loan with a low-interest rate, you can save a significant amount of money in the long run.
Many people struggle with high-interest rates because they don’t know how to get the best deal from lenders. The good news is that with a few smart strategies, you can secure a personal loan at a much lower interest rate. Let’s explore some simple and effective ways to achieve this.
1. Maintain a High Credit Score
Your credit score is one of the biggest factors that determine the interest rate on a personal loan. A high credit score indicates that you are a responsible borrower, making lenders more likely to offer you a lower interest rate.
How to Improve Your Credit Score?
- Pay your credit card bills and EMIs on time.
- Keep your credit utilization ratio below 30%.
- Avoid applying for multiple loans at the same time.
- Check your credit report regularly and correct any errors.
If your credit score is 750 or above, you can easily negotiate for a lower interest rate on a personal loan.
2. Compare Loan Offers from Multiple Lenders
Never settle for the first loan offer you receive. Different banks and financial institutions have different interest rates and terms. Comparing multiple lenders helps you find the best deal.
Where to Compare Loans?
- Use online loan comparison websites.
- Visit the official websites of banks and NBFCs.
- Check with your existing bank for special offers.
Some lenders offer lower interest rates to their existing customers, so always check with your current bank before applying elsewhere.
3. Choose a Shorter Loan Tenure
The loan tenure you choose affects the interest rate. Generally, shorter loan tenures come with lower interest rates because lenders face less risk.
Why Choose a Shorter Tenure?
- You pay less interest over time.
- Lenders consider shorter loans less risky.
- You become debt-free sooner.
However, make sure that the EMI amount is affordable so that you don’t face financial stress.
4. Opt for a Loan with a Co-Applicant
Adding a co-applicant, such as a spouse or family member, can help you secure a lower interest rate. If the co-applicant has a strong credit profile, it reduces the lender’s risk, increasing the chances of a better loan deal.
Benefits of a Co-Applicant
- Higher loan eligibility.
- Lower interest rate due to shared risk.
- Increased approval chances for high loan amounts.
Ensure that both applicants have a stable income and good credit scores to maximize benefits.
5. Maintain a Good Relationship with Your Bank
Your relationship with your bank can play a significant role in securing a low-interest rate on a personal loan. If you have been a loyal customer with a good transaction history, banks may offer you preferential rates.
How to Build a Good Banking Relationship?
- Maintain a savings account with regular transactions.
- Take and repay loans on time from the same bank.
- Invest in bank products like FDs or mutual funds.
Lenders trust long-term customers and may offer better loan terms to maintain their relationship with you.
6. Opt for a Secured Personal Loan
Most personal loans are unsecured, meaning they do not require collateral. However, if you can provide security like a fixed deposit, property, or gold, you can avail of a secured personal loan at a much lower interest rate.
Advantages of Secured Loans
- Lower interest rates due to reduced lender risk.
- Higher loan amounts can be approved.
- Easier approval process.
However, keep in mind that failure to repay a secured loan may result in the loss of your pledged asset.
7. Apply for a Loan During Special Offers or Festive Seasons
Banks and financial institutions often offer special discounts on loan interest rates during festive seasons or promotional periods. These are the best times to apply for a personal loan at a lower rate.
When to Apply?
- Diwali, Christmas, and New Year
- Independence Day and Republic Day Sales
- Bank Anniversary Offers
Keep an eye on these offers and apply at the right time to get the best deal.
8. Negotiate with Your Lender
Many borrowers don’t realize that personal loan interest rates are negotiable. If you have a strong credit history and a stable income, you can directly negotiate with your lender for a better rate.
How to Negotiate Successfully?
- Highlight your high credit score.
- Show proof of stable income and job security.
- Compare competitor rates and ask for a match or better offer.
If you are an existing customer with a good banking record, your bank may agree to lower the interest rate upon request.
9. Avoid Frequent Loan Applications
Applying for multiple loans within a short period can negatively impact your credit score. Every loan application results in a hard inquiry on your credit report, which may signal financial distress to lenders.
Best Practices for Loan Applications
- Research thoroughly before applying.
- Apply only with lenders where you have a high chance of approval.
- Wait for a few months before reapplying if rejected.
Being selective with your loan applications helps maintain a good credit score and increases the chances of securing a lower interest rate.
10. Check Eligibility Before Applying
Each lender has specific eligibility criteria for personal loans. Before applying, check the requirements to ensure that you qualify. Meeting the criteria increases the chances of getting a lower interest rate.
Common Eligibility Criteria
- Minimum age (usually 21 to 60 years).
- Minimum income requirement.
- Employment type (salaried or self-employed).
- Credit score above 700.
If you don’t meet the criteria, work on improving your financial profile before applying for a loan.
11. Consider Transferring Your Existing Loan
If you already have a personal loan with a high-interest rate, consider a balance transfer to another lender offering a lower rate. Many banks provide balance transfer options with reduced interest rates to attract new customers.
How a Loan Balance Transfer Helps?
- Reduces your EMI burden.
- Helps save money on interest payments.
- Allows you to switch to a better lender.
Before transferring your loan, check for any processing fees or charges that may apply.
12. Choose a Government or PSU Bank Over Private Lenders
Government banks and PSU (Public Sector Undertaking) banks usually offer lower interest rates on personal loans compared to private banks. If you meet their eligibility criteria, you can save money by opting for a PSU bank.
Benefits of PSU Bank Loans
- Lower interest rates.
- No hidden charges.
- Transparent terms and conditions.
Although PSU banks may have a slightly longer processing time, they provide reliable and cost-effective loan options.
