Here’s How to Avoid Expensive Personal Loan Interest Rates

Here’s How to Avoid Expensive Personal Loan Interest Rates

December 16, 2022

Personal loans are, no doubt, one of the most utility-rich financing options available today. They come with high financing value, have flexible repayment tenures, and provide financing for all types of personal and professional funding needs one may encounter. As unsecured advances, these loans also eliminate the risk of asset collateral when borrowing. With the availability of personal loan apps today, you can easily avail financing from the comfort of their homes. However, the unsecured nature of these loans also subject the lender to a higher risk, which often leads them to compensate with higher interest rate levy as per their policies and financing decisions.

While the perks of an instant personal loan, makes it more preferred than other secured financing options, the interest rates often stand as a road block. However, you can tweak a few factors in your financial profile and use a few smart tips to avoid the expensive interest rate levy. 

Read on to discover some of the expert approved ways to avoid expensive interest rates on your personal loan.

Tips to Reduce Your Personal Loan Interest Rates

  1. Time your borrowing well

Interest rates on instant personal loans are subject to fluctuations in the market rates as well as through a consequence of RBI’s monetary policy changes such as an increase or decrease in the repo rate. As these levy metrics are subject to variations, you can time your borrowing around a period in which the overall market rates are cut down to secure the best interest rate possible.

  1. Consolidate multiple high-interest loans into one personal loan with low rate

It may happen that you have borrowed multiple small personal loans over the time at varying rates of interest, and are still servicing them through multiple EMI payments. Often the cumulative interest pay outs on these loans are much higher. This can turn out significantly expensive as well as financially draining in the long run. To escape such a financial trap, you can choose to consolidate these multiple small loans into one personal loan that comes with a low rate of interest.

Under the consolidation process, one can combine multiple finances in one. You can do so by availing a new personal loan at a low rate of interest and utilise the financing to pay off the multiple small ones. As a result, the incidence for repayment remains only for one loan that too at a low rate of interest. You can easily apply for these advances from the comfort of your home through a personal loan app.

  1. Apply with a high credit score

One of the best ways to navigate through the personal loan market to find the best rate on the instant personal loan is to apply for it with a high credit score. A credit score represents the creditworthiness of an individual. With a high credit score, you stand a better chance to negotiate for a lower interest rate with the lender.

As a high score brings down the overall risk associated with these unsecured advances for the lender, they are more likely to reduce the rates for you. Though you may be eligible to avail a loan even with low credit score, it is always smart to improve your credit score before applying for the loan. In case you opt to borrow through a personal loan app, the threshold may not be a mandate, but having a high score would bring you attractive perks.

  1. Document all sources of your income

Your overall financial and repayment capacity are a critical indicator to determining the final interest rate levy on your loan. Lenders put a minimum monthly income threshold as an eligibility parameter for borrowers to fulfil the purpose of availing the advance that you also need to document when applying for the loan.

When sending your instant personal loan application, it can be important to mention all your income sources, both primary and secondary with your lender. It is advisable to do so even if your primary income meets the minimum income threshold. This is because combining all your income sources helps represent an enhanced borrowing capacity. Now, depending on your loan requirement, an enhanced total income can easily help accommodate the EMIs payable for your loan, thus making you a perfect customer for the lender. 

  1. Leverage your employment profile

If you are employed with a reputed public/private sector company or an MNC and have a stable job for years, you can also leverage your employment to negotiate for a low interest rate on your instant personal loan with the lender. Lending institutions are likely to provide financing to individuals who have a secure and stable job with a reputed organisation as it reduces various lending related risks from the borrowing individual’s profile.

Also, many lenders offer corporate benefits on their personal loan. So, make sure to ask your lender if they are offering any such deal. You can also consider the financial institute where you hold your salary account. Since you are an existing customer for that bank, you might be eligible for a loan at reduced interest rate. Also, the whole documentation process becomes much easier and the loan processing much faster. 

  1. Apply with an existing lending institutions

If you have good relations with an existing financial institution, you can also leverage this to secure a better rate on your personal loan. A good repayment history maintained with the lender previously vests borrower confidence in the lender, thus allowing them to lower the interest levy. You can also seek to apply through their personal loan apps for a better borrowing experience overall.

  1. Consider Balance Transfer of your loan

If you have already availed a personal loan, you can still attempt to avoid paying an expensive personal loan interest rate by choosing to switch to a new lender with the balance transfer facility. Whether you are applying through lender website or through a personal loan app, the facility is easily available on all lending platforms. While opting for balance transfer, consider the various charges and fees associated with the process. Also, before moving to a new lender try to negotiate with your existing lender to offer you a better deal on the interest rate.

Conclusion

Your interest rate is one of the most important parameters that influence your borrowing decisions. Paying a high interest rate on your loan not only increases your EMI burden but also increases your total interest pay out on the loan making it a very expensive deal. As such, it is always advisable to go for a loan only when the interest you are paying is justified by the urgency of your need. There are several ways that can help you secure a personal loan at a much lower interest rate and the tips you just read are some of the sure shot ways that you must try!

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