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How to get the best interest rates on your loan?
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Occasionally, you may be in need of emergency funds for a specific personal expense like a hefty medical bill or a major home repair. You may require financing for buying or constructing a house property or for paying for your child’s higher education. For all these financial requirements, there are a variety of loans you can opt for like personal loans, home loans and education loans among others.
Every loan comes at a cost though. You need to pay interest to your lender. If you’re not careful, these interest costs could quickly escalate into steep monthly expenses. So, here are some tips to help you get the best interest rates on your loan.
1. Improve your credit score
Your credit score is a 3-digit number ranging from 300 to 900. It is calculated based on various parameters like your loan repayment history, credit utilization, credit mix in your portfolio and more. This number indicates how credit-worthy you are. The higher your credit score, the better it is for you.
Lenders typically tend to trust borrowers with credit scores of 750 or higher. If your credit score is not within this range, you can attempt to increase it by repaying your current loans promptly. Once your credit score rises, you’ll find it easier to obtain loans at competitive interest rates.
2. Compare interest rates before you apply
Not all lenders offer the same interest rate on any kind of loan. For instance, efficiently for some kinds of Online Personal loan than for others range from around 10% per annum to 30% per annum or higher. Similarly, credit card interest rates also vary from one card to another, as do home loan rates and other loan costs.
The best way to find loans that come with affordable interest rates is to compare your options. Today, there are various aggregator platforms that can help you with this. By comparing the different lenders in the market, you can identify the entities that offer low interest rates and check if you qualify for their loans.
3. Check if you are eligible for any pre-approved loan offers
Many banks and lending institutions occasionally have offers during festive seasons. Certain categories of borrowers (like salaried individuals with an income above a specified limit or borrowers with a credit score in a certain range) may be eligible for preferential interest rates or pre-approved offers.
If you are planning to avail a loan for a milestone in life, like a home loan or an education loan, keep an eye out for such offers. In case you qualify, you can take advantage of the lower interest rates or flexible terms or repayment your lender may have in place as part of such an offer.
4. Choose a lender with whom you have a prior banking relationship
You may find it easier to avail a loan at affordable rates if you already have a good banking relationship with your lender. So, it may be a good idea to consider your primary banking partner when you are planning to avail a loan. This tip may work in your favor particularly if you’ve been a customer of the bank for several years.
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5. Consider availing a secured loan
Secured loans require an asset as collateral. You can pledge any kind of asset, like your house property, gold, securities and shares or even fixed deposits. Banks tend to offer lower rates of interest on secured loans because the collateral offsets a part of their risk. So, if you have the option to choose a secured loan and if you have an asset to pledge, this is an alternative you can consider.
6. Negotiate before you sign
Lastly, before you sign the dotted line, always negotiate your interest rates if you can. You may get the benefit of a 25 bps or 50 bps reduction and this could make a lot of difference to your finances over the repayment tenure.
Conclusion
These tips and tricks may work more efficiently for some kinds of loans than for others. So make sure you draw out a strategy that applies to the kind of loan that you are interested in. You can then proceed to negotiate with the lender and make use of other pointers outlined above to get the best interest rates on your loan. Remember that it’s always best to put in as much effort as you can to lower the cost of borrowing before you avail a loan. That way you can save a lot over the long term.
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