The first question that comes to your mind when you decide to take a personal loan is: what personal loan interest rate will I be charged? It’s a logical question and there are many people out there who might have a similar question.
The interest cost on a personal loan is a significant amount; so, it’s quite normal to hunt for a personal loan with a low-interest rate. But, getting the best personal loan interest rate is not as easy as it sounds. It requires research to shop around the best personal loan offers and then compare their interest rate offers.
Let’s go through some tips that may help you find a personal loan that offers the best interest rate:
1. Choose the right personal loan provider
There are different kinds of lenders catering to people with different kinds of needs. You have to find a lender that offers a personal loan that you’re looking for.
Different types of personal loan providers/platforms are:
- Personal loans from family members or friends
- Personal loans from traditional banks
- Online personal loans
- Peer-to-peerpersonal loans/online lending platforms
Check the offers and choose the one that’s best aligned to your needs.
2. Improve your credit
Maintaining a high credit score and a positive credit history is the key for a low-interest rate. If your credit score isn’t unlocking the best personal loan interest rates for you, then it’s high time you get started on improving your credit score. Here’s what you can do:
- Get added as an authorized user on an existing credit card account of a close friend or a family member.
- Open a credit card but use it responsibly. It’s easy to get carried away with credit cards; so, be cautious.
- Checky credit reports frequently and fix errors or mistakes in the report.
- Make on-time payments on your existing credits.
- Maintain a low credit card balance.
These financial habits can give a boost to your credit score. The higher the credit score, the lower will be the personal loan rate.
3. Get multiple offers for personal loan rates
Each personal loan vendor has its own criteria for setting up personal loan rates. It’s a smart move to put each one to the test.
Get the offers from the lenders and then do a personal loan interest rate comparison.
4. Compare APRs; not just interest rates
Personal loan APRs are different from personal loan interest rates. APR is the annual percentage rate and is calculated to include the fees and interest. It reflects the true personal loan costs. Compare APR of all the personal loan offers you have and make sure you’re not paying more than you bargained for.
5. Choose a shorter personal loan term
The faster you repay your personal loan, the less risk the loan carries. Therefore, lenders offer better interest rates on personal loans with a short tenure.
Try to choose the shortest possible loan term that allows you to manage your repayments comfortably.
6. Keep an eye on the total loan cost and monthly repayment amounts
It’s advisable to keep an eye on the different loan terms and how they affect your total loan cost (the amount you’ll pay over and above the principal loan amount) and equated monthly instalments (EMIs). A personal loan EMI calculator can help you to shortlist the loan offers based on the loan terms and your affordability.
The total loan cost will be lower if you choose shorter loan tenure as the personal loan interest rates are lower and are paid quicker.
Whether to choose a long or short tenure should depend on your financial affordability. If you can afford to pay high EMIs, short tenure personal loan can offer you a lower personal loan interest rate. If your financial situation doesn’t allow paying high monthly installments, best is to choose a long tenure personal loan. The interest rate may be higher but the EMIs are affordable, so you won’t fall behind on payments.
7. Add a co-applicant
If your credit score is good but on a lower side, you may want to add a co-applicant with a better credit score. When you add a co-applicant with a better credit score, both yours and your co-applicant’s credit histories are taken into consideration. That means you are more likely to get the best personal loan interest rates.
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Shiv Nanda is a financial analyst who currently lives in Bangalore and works with MoneyTap, India’s first app-based credit-line. Shiv loves to help and educate people on various financial topics about investment choices, budgeting skills, personal financial matters and personal loans.
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