Surely, a financial crunch at any point in your life may impact your life drastically. So, an instant personal loan online offers a perfect way to manage your finances. However, knowing the loan terms and rates becomes crucial when the discussion is about personal loans.
So, here’s how you should negotiate with the lender before you opt for the loan. However, at first, please find out what exactly interest rate means in personal loans:
An Overview of Interest Rates
Among other critical aspects, the interest rate on personal loans is a significant thing to consider. Simply put, the interest rate is the additional amount charged over the amount you applied for. Your lender charges this rate. So, when you start paying back, you must pay this amount as the additional charged amount.
A wide range of factors, such as the following, determines your interest rate:
- Your credit score
- The loan amount
- The loan term’s length
- The type of lender
- Your repayment history
- The total debt-to-income ratio
Suppose you have earlier applied for loans. So, you already understand how the credit score impacts your interest rate – right?
Evidently, you may improve your chances of getting the interest rate on an online personal loan.
On that note, this post presents the top tips and hacks to reduce your interest rate.
Tips and Hacks to Reduce Your Personal Loan Interest Rate
A higher interest rate on a personal loan might make it extremely expensive. But here’s the good news – you can now negotiate and reduce the interest rate the lender charges. The following are the tips and hacks to get better rates on the loan amount:
Compare Different Interest Rates and Offers
Based on personal loan eligibility, you can find different platforms to compare rates on interest. In addition, you can pay attention to the existing lender. Note that some lenders offer discounts to lower the APR or Annual Percentage Rate. For instance, various banks and lending institutes offer rate reductions for auto-debit EMIs. Some banks offer lower interest rates for accounts with a minimum balance. You may explore during festive seasons to get special discounts and offers on interest rates.
The pre-owned offers also help you get credit at special rates. This is more beneficial for individuals with a decent credit score.
Improve Your Credit Score
Your credit score determines your credit behaviour and the way you have paid the earlier loan back. In general, having a 750 credit score helps you negotiate for lower rates. The following is the table that represents the credit score and range, depending on which your interest rate gets evaluated by the lender:
- 300 to 549 indicates a poor score
- 550 to 649 indicates a fair score
- 650 to 749 indicates a decent score
- 750 to 799 indicates a great score
- 800 to 900 indicates an excellent score
Since your credit score helps determine the interest rate, you must have an excellent CIBIL score above 750. You can better negotiate reduced rates as lenders see such candidates as ones with lower risks.
On the other hand, poor scores may increase your chances of higher interest. So, you must take time to get an idea of your credit report around the credit bureaus.
Learn How the Interest is Calculated
Suppose your lender charges a higher interest rate on your personal loan application. In such a scenario, you should at least try to find the reason. It might not be because of your low credit score but for some other reason. For instance, some lenders use different interest calculation methods.
As a result, this increases your interest rate even if you have a lower credit report. So, before your loan gets sanctioned with a higher interest rate, you need to look for the method your lender uses to calculate your interest rate. Note that the flat interest rate is calculated on the loan via tenure. Another method is reducing the rate of interest, which is calculated based on your outstanding amount after each monthly EMI payment.
Negotiate Directly with the Lender
Never be hesitant to consult your lender directly about the instant personal loan. There are borrowers like you who easily accept the first offer by the lender. However, it is imperative to cross-check the amount. If your lender is flexible, they can consider the negotiation. So, here’s a list of negotiation tips you can follow while discussing it with your lender:
- Take time to check your documents and learn your credit score
- Be humble and polite while talking to the lender about the negotiation
- Present other rates by comparing different lenders to convince your lender about the negotiation
- Request a reduction rate instead of a whopping discount for a realistic outcome
So, if your lender is approachable, they will consider the negotiation and offer better rates.
Opt for a Shorter Tenure for Bigger Savings
The simple logic for personal loan application is that –the shorter the loan tenure, the less interest you pay. The reason is simple – the period within which you repay your loan is short. So, the interest rate is calculated based on your outstanding loan amount.
Thus, opting for a shorter loan term helps you pay back the loan faster. This reduces the overall time period for accumulating the interest. A shorter tenure, no doubt, might mean higher EMIs. However, the interest rate is reduced. However, while applying for this type of loan, ensure that the higher EMI fits within your budget.
Wrap up
Negotiating the personal loan interest rate isn’t so easy. At times, despite your efforts, your lender might be unwilling to negotiate. But you must not be afraid. Look for other lenders in the market to get better deals elsewhere.
Always remember that patience is key, so never rush into accepting a loan with a higher interest rate just because the need is immediate. Take some time and compare different offers. Thus, following the above tips and hacks may secure your emergency loan and save you significantly in the long run.
