The interest rates offered on your personal loans comprise a major chunk of your borrowing costs.
The interest rates set by the banks and Non-Banking Financial Companies (NBFCs) can vary widely for the same applicant as the lenders consider their cost of funds, net interest margins, etc. and their loan applicants’ credit risk assessment while setting the interest rates.
Here I list 5 tips to increase the chances of availing personal loans at lower interest rates:
Maintain Higher Credit Scores
Banks and NBFCs usually sanction the personal loan applications of those having credit scores of 750 and above. Lenders are also more likely to offer preferential personal loan interest rates to such applicants. Lenders may reject loan applications of those having lower credit scores or grant personal loan approval at higher interest rates.
In case of financial/medical exigencies, you may need to apply for a personal loan at short notice. Therefore, you should build or maintain higher credit scores to increase your loan eligibility.
To improve your credit scores, you should fetch your credit report at periodic intervals. Doing so will grant you sufficient time to initiate corrective measures for improving your credit scores.
Loan applicants should also review their credit reports to identify any error or incorrect information in their credit reports or fraudulent credit activities done in their names.
They should communicate any such issues to both the lender and the respective credit bureau for correction. Rectified credit reports can increase your credit scores, which in turn will improve your chances of getting personal loan approval.
Avoid applying for personal loans with multiple lenders within short time durations
Banks and NBFCs fetch the credit reports of their personal loan applicants from the credit bureaus to ascertain their creditworthiness. Such lender-initiated requests for fetching credit reports are considered as hard inquiries.
Credit bureaus reduce your credit score by a few points for every such hard inquiry. Therefore, multiple inquiries within short durations can sharply reduce your credit scores, which in turn will decrease your chances of availing personal loan at lower interest rates.
Instead, prospective borrowers can visit online financial marketplaces to check and compare the personal loan schemes offered by multiple lenders before they apply for a personal loan online. Credit bureaus consider any such credit report request as a soft inquiry, which does not affect your credit scores negatively.
Check with your existing lender(s)
Some banks and NBFCs offer personal loans to their existing customers at preferential interest rates. Many lenders offer pre-approved personal loans only to their select existing customers who have good credit profiles.
Therefore, prospective personal loan borrowers should first check with their existing lenders with whom they have a deposit or lending relationship.
They can then use the personal loan offers of their lenders as a benchmark to compare the personal loan offers available from other lenders before making the loan application.
Compare the Personal Loan Interest Rates offered by Multiple Lenders
The interest rates offered on personal loans usually depend on the credit risk evaluation process and credit pricing process followed by the lenders. Therefore, the personal loan rates offered to the same individual may differ across lenders.
Thus, prospective applicants should compare personal loan offers of multiple lenders before applying for a loan.
Loan applicants can also visit online financial marketplaces and/or visit various instant personal loan app to compare the personal loan offers from multiple lenders on the basis of their interest rates, tenure, loan amount, disbursal time, fees and charges, etc. Doing so can help those applicants select the best possible personal loan offer.
Avoid Frequent Job Changes
Lenders consider their loan applicants’ employment stability while assessing their personal loan applications. As frequent job changes reflect both career and income instability, it ends up increasing the lenders’ credit risk.
Therefore, lenders usually reject personal loan applications of those switching their jobs frequently or approve their loans at higher interest rates.
Some lenders also require their salaried personal loan applicants to be employed for at least 6 months to 1-year in their current organisation. Therefore, prospective personal loan applicants should avoid switching jobs to increase their chances of personal loan approval.
