Financial terminology can often be somewhat scary, with lots of abbreviations, specialized term...
Interest rates can be a killer when it comes to paying back your loans. They get really expensive once you calculate how much you are actually paying the bank, so it’s always best to try and get the lowest rate possible. While it is unlikely that you’ll get the bank to budge too much, even a percentage point can be meaningful savings. For this, you need to arm yourself with knowledge and serious negotiation skills. Keep reading, to find out how you can get lower interest on a personal loan.
A personal loan is an individual credit that is given by a bank or another lending institution to one person. The amount is given and the interest rates are usually based on the person’s income, their current CIBIL Score, and their ability to prove that they will be able to pay the money back. This type of loan can be used for any type of spending, from home renovations to education and medical expenses. However, interest rates on personal loans tend to be much higher than some of the other types of loans. Additionally, the person has to pay it back within 1 to 5 years.
So with the interest rates on personal loans soaring, what are some of the best ways to get a great deal from the bank?
Oftentimes, people take out personal loans when there is an emergency. For example, someone in the family got sick and there is an urgent need to cover expenses. Or, your car needs sudden fixing, the house has had some issues, etc. When this happens, there is not a lot of time to invest in research – you need the money right away. To be prepared for this type of situation ahead of time, do your research now! Try to find out what the different lending institutions offer for personal loans and at what rates. Also, make sure that you know the different rules, quirks, and catches before you begin applying.
Whether you in a rush or not to get your personal loan, it’s still important not to go for the first thing that you get offered. Shop around a little bit first instead. You can usually see the basic offers that banks have without having to apply first – this will give you an idea for the starting point. Next, try submitting an application to two of your top choices and see what you get offered, plus how much you can negotiate. But be careful, too many applications for credit can lower your credit score, so don’t get overexcited with applications.
Typically, lenders will calculate your interest rate based on your credit ranking or the CIBIL Score. A credit score is a number between 300 and 900, the higher it is, the better. If your credit score is over 750, you are likely to get the best offers on personal loans, including the lowest interest rates. To keep a high credit score, make sure that you are paying all of your current credit in a timely manner, maintain low credit balances and demonstrate a secure behavior on paying back any loans.
Banks will almost never give you the best offer off the bet. So you should always negotiate when you applying for a personal loan. This is particularly true if you have a really good credit rating. In this case, there is much room for you to push the bank to give you a lower interest rate on your personal loan. Be sure to prepare your pitch well before you go for a bank meeting. Include information on your credit score and report, your income, past credit behavior and even any offers from other lenders. After all, the bank does want your business.
One of the easiest ways to bring down the interest rate on your loan is to secure it with an asset. While most personal loans are unsecured, you can sometimes tie it to something like your car or other valuables, which will make it less risky for the bank to lend you money. This means that by taking on less risk, they will be able to offer you a better interest rate. It will also be a better addition to your credit portfolio since unsecured loans can bring your overall credit rating down. Of course, take the time to really think through what you are willing to secure the loan against and if it makes financial sense in the long-run.
Depending on your salary, you may get approved for a lot of money for a personal loan. But if you don’t need it, then don’t accept this high amount. Instead, see how much you really require and only borrow this. While it won’t directly affect your interest rate, it will mean that you’ll be paying less interest in the long-run. That’s because your overall principle will be lower. Additionally, you won’t be tempted to spend any leftover money on things you don’t absolutely need.
The last word of wisdom is to make sure you know all of the information. Read the fine print, terms and conditions and any document that you sign while taking out a loan. Likely, if it sounds too good to be true, it is. And even if it just sounds OK, you should still make sure there are no hidden fees, extra interest, or other conditions that may have a negative impact on your loan or credit history.
Just like in any market, you should always try to get the best possible offer for your personal loan. Whether it is through negotiation power, securities or some research, take the time to understand your options and pick the best one for you.