A personal loan is an unsecured loan that you can get on the basis of your income and credit score. Since it is an unsecured loan, it carries a higher interest rate than a secured loan. Personal loans are easy to get and are ideal for dealing with an emergency or funding your marriage, education, and holidays. Maybe that is why many people do not even bother to check the interest rates before opting for a personal loan. The fact is that you can get a personal loan at the low-interest rate provided that you keep in mind the points discussed below when applying for a personal loan.
Your Credit Score
If you want to get a personal loan at a low-interest rate, you have to ensure that your credit score is above 750. Your credit score is an indicator of how likely you are going to repay the loan. A high credit score indicates that you are in a stable financial condition and that you have repaid your past loans on time. Since you are more likely to repay the loan on time, a lender will be more than happy to lend you money.
If you have a low credit score, it would be really tough to get a loan at a low-interest rate. Under such a circumstance, you need to first improve your credit score before applying for a personal loan. It is going to take some time to improve your credit score, but you need to start following the steps mentioned below right away.
- Start paying all your bills on time. If you have a credit card bill, student loan, auto loan, home loan, or any other type of loan, it is important to pay them on time.
- Pay off your debt if it is possible. Or at least try to pay off as much as you can.
- Pay attention to the credit utilization ratio. You can calculate this by first adding up all the balances on all your credit cards for the past 12 months. Then simply divide this number by 12. The number that you arrive at will tell your average credit usage every month. Lenders prefer to give loans to people whose credit utilization ratio is below 30% because it tells the lender that you know how to manage your credit and that you have not used your credit cards to the maximum.
- You can bring down your credit card utilization ratio by paying off your credit card debt.
- Do not apply for new loans, because that would lead to a new inquiry on your credit card report and this would affect your credit card score adversely.
- If you have an unused credit card with no balance on it, do not close it. If you are not paying an annual fee on that card, it is best to leave it open. This way you can improve your credit card utilization ratio.
Once your credit score improves, you can apply for a personal loan with a low-interest rate.
Shop Around Before Selecting a Lender
It is never a good idea to buy from the first shop that you come across. Look around and you are bound to find a better deal than the first shop that you went to. The same logic applies when you are looking for a personal loan. There are so many lenders in the market, that you can always find a loan with a low-interest rate.
Leverage Your Present Employment Status
If you are earning good and/or you are working for a very reputable company, you can always use that as leverage when negotiating with the lender for the low-interest rate. Even if your credit card score is not that good, you can always tell the lender that your present income will allow you to repay the loan on time. Since a bank does not like to lose a valuable customer, it is more likely to agree to your terms. If your credit score is good, you can use your present income to negotiate to further decrease your interest rate.
Check Out All the Hidden Costs
If a bank is offering you a personal loan at a verylow-interest rate, chances are that it is deceiving you. Read the fine print and find out if they are charging you a processing fee, insurance fee, or some other type of fee. In order to attract new customers, many banks offer personal loans at low-interest rates but attach other hidden charges to earn extra money. These extra fees are often very exorbitant and have a significant impact on the monthly payment. Become an informed customer and make sure that besides the low-interest rate you are not paying anything extra on your personal loan.
Opt for Personal Loan during Festival Seasons
Many banks offer attractive personal loan schemes during the festive seasons in order to attract customers. People need loans during the festive seasons to renovate their homes, buy jewelry, buy new gadgets, or to go on a vacation. Since there is so much demand for personal loans during festive seasons, banks offer attractive schemes to get more and more customers. You can take advantage of these schemes and get a personal loan at a low-interest rate. However, make sure that you shop around and read the fine print before you finalize your personal loan.
Get Loan from Your Company or Union
Many companies and unions extend loans to their employees at a very low-interest rate or no interest rates. How much loan they can extend will depend on your income. If your loan requirement is not that much, you can always approach your company or union for a loan. There is a high chance that you might not have to pay any interest on the loan. The monthly payment on the loan will simply be deducted from your salary every month.
A personal loan is a great way of taking care of your immediate financial need, provided that you repay it on time. With a low-interest rate, a personal loan becomes affordable and increases your chance of repaying it on time.