Personal loans are one of the most affordable financing options available in the market today. They are also easy to avail and require individuals to complete only a few criteria for accessibility. Nevertheless, as unsecured advances, they carry an inherent lending risk for the financial institutions. Depending on the borrowing profile of the individual, the personal loan interest rates levied can vary from the standard rates. It is primarily because lenders charge interest as a way to cover up for the lending risk involved to some extent. Thus, the higher the risk, the greater your personal loan rate levy.
Now, since the borrowing profile of an individual is subject to several factors, tweaking the ones possible can bring a change in the overall risk involved. This can in turn, prompt the lender to offer better rates on the loan, allowing for borrowing at improved affordability. Below are given some tips and tricks you can use to reduce interest rate levy on your personal loan.
How to Reduce the Rate of Interest on Your Personal Loan?
Make comparison of financial institutions
One of the best ways to secure the lowest personal loan interest rate is to make elaborate comparison of loan offers from available lenders in the market. You can check and enquire from different lenders regarding the interest rate levied and narrow down to financial institutions offering some of the lowest rates in the market.
From those narrowed down, you can then choose the best lender based on interest rate, other charges, as well as the features and facilities provided thereon. This should ensure you receive maximum borrowing benefits for easy management of your loan repayments.
Choose a lower loan amount than available as per your financial standing
Another smart way to reduce the personal loan interest rates levy is to apply for a loan amount that is lower than what one can actually afford at max. The maximum loan eligibility of an individual is based on how much he/she can easily repay for based on the EMIs computed. A personal loan eligibility calculator can help with this borrowing assessment, allowing you to gauge how much you can manage to borrow comfortably based on your age, income, city of residence, and other related factors.
Once you have checked your maximum personal loan eligibility, you can assess the various combinations of loan amount and tenure selections for EMI computation. Use a personal loan EMI calculator for the purpose and choose a lower loan amount that quite easily accommodates the EMIs in your monthly income. Applying for such a loan value renders a low-risk borrowing profile, thus allowing the lender to levy lower rates.
Opt for a long tenure
Similar to the impact of smaller loan value on the EMIs payable, a longer loan tenure than optimal also brings down the EMIs payable. It thus adjusts it easily in your income, almost ensuring that you make your loan repayments in time and in full.
However, what you must understand here is that a longer tenure can affect your overall loan affordability as it would result in higher interest accrual. So, when selecting a long tenure, keep a lookout for a balance between accruing interest and the decreasing EMIs calculated, and choose accordingly.
Provide all income documents
Income documents are one of the must-have personal loan documents required that lenders ask for when assessing your loan application. However, applicants often document only their primary income source and ignore other incomes for the purpose. Note that documenting all your primary and secondary income sources allows a better representation of your financial standing and thus the overall borrowing capacity, helping secure lower rates of interest.
An additional way to reduce your personal loan interest rates is to apply for the advance with a co-applicant holding high eligibility. You can also work up to improve your personal credit score when applying to represent a reliable creditworthiness to secure better terms on your advance.