Banks and non-banking financial companies (NBFCs) offering personal loans usually set the interest rates for their loan applicants based on several factors like their credit score, income, job profile, employer’s profile, etc. As higher interest rates for your personal loan may lead to higher total interest costs and EMIs, here are 4 tips to help you avail personal loans at lower interest rates and thereby, reduce your EMI burden.
Improve your credit score
Lenders consider loan applicants with high credit scores as more financially disciplined and thus, such applicants also pose a lower credit risk to the lenders. Therefore, lenders offer lower personal loan interest rates to applicants having higher credit scores. Lenders may deny loan approval for personal loan applicants having lower credit scores or sanction the loan but at higher interest rates to compensate for undertaking higher credit risk. Therefore, loan applicants should always aim to build and maintain high credit scores to improve their personal loan eligibility and maximise their chances of availing personal loans at lower interest rates.Â
Loan applicants can improve their credit scores and thereby, enhance their eligibility for availing personal loans by avoiding multiple credit card or loan applications with lenders within a short span, repaying their credit card bills and EMIs by their due dates and monitoring the loan accounts guaranteed or co-signed by them. They should also fetch their credit reports periodically to detect clerical errors or incorrect information, if any, present in those reports. Such errors or incorrect information should be reported to the credit bureaus for rectification. A rectified credit report would automatically improve their credit score.
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Check with banks/NBFCs with which you have credit card, loan or deposit accounts
Prospective borrowers looking for personal loans should check the interest rates offered by lenders with whom they have an existing deposit, credit card or lending relationship. Many lenders offer lower interest rates on personal loans to their existing customers or those having deposit or lending accounts with them. For example, if you are an existing customer of HDFC Bank, you can get in touch with them to know the current HDFC Personal Loan Interest Rates and whether you are eligible for any concessions on those interest rates. Loan applicants can use the personal loan features and interest rates offered by their existing lenders as a benchmark to compare the rates offered by other lenders.Â
Visit online financial marketplaces to compare the interest rates offered by multiple personal loan lenders
The interest rates offered on personal loans usually start from 10.49% p.a. The personal loan interest rates may differ from one lender to another based on their credit evaluation process and the risk factors associated with the unsecured nature of personal loans. Therefore, personal loan applicants should compare the interest rates and other features of personal loan schemes provided by various lenders. Loan applicants can visit various online financial marketplaces and get multiple personal loan offers depending on their income, credit scores, job profile, employer’s profile, etc. Apart from comparing the interest rates, loan applicants should also check the loan amount, repayment tenure, processing fee, prepayment fees, eligibility criteria, documentation etc., offered on personal loans by different lenders before making a final decision.
Maintain your EMI/NMI Ratio within 50-55%
EMI/NMI ratio is the total of an individual’s EMI obligations (including the EMI of the proposed personal loan) as a proportion of his/her net monthly income (NMI). Lenders usually consider their personal loan applicants’ EMI/NMI Ratio as a key indicator of their repayment capacity. Lenders usually prefer approving the personal loan applications of applicants who manage to restrict their EMI/NMI ratio within 50-55% of their net monthly income. Applicants exceeding this limit have lower chances of availing personal loans. Thus, loan applicants can make use of the Personal Loan EMI Calculator to know whether their EMI/NMI ratio, after including the EMI of the proposed personal loan, is within the aforementioned limit. Loan applicants having the desired EMI/NMI ratio may also negotiate with their personal loan lenders for lower interest rates. Applicants who exceed the above mentioned limit can opt for longer loan tenures to increase their chances of loan approval.Â