Taking a personal loan means more than securing funds—it’s about managing the financial terms that come with it. For anyone keen to make the most out of their loan, knowing how to get the lowest interest rate can be a game changer. Rather than applying to the first offer you see, a thoughtful approach can reveal opportunities to bring down costs and secure a more affordable path forward. Here’s how to make sure you’re not paying a rupee more than necessary.
1. The higher the credit score, the better the interest rate
Your credit score directly reflects your creditworthiness, signalling to lenders how reliable you are in repaying debt. In India, a score above 700 is generally seen as favourable, leading to lower interest rates on personal loans. Regularly checking and maintaining your score by paying dues on time and managing credit utilisation helps lenders view you as a lower-risk borrower, which can translate to better rates.
2. Take your time researching and compare
The letter specifies the rate at which interest will be charged on your loan. Understanding this rate is essential, as it directly affects your monthly instalments and the overall cost of the loan over time.
3. Check out limited-period offers
Certain times of the year—especially during festive or financial quarters—lenders offer promotional rates and reduced processing fees. These can be a great opportunity to lock in a loan at a lower rate. Staying informed about seasonal deals or bank-specific offers can help you save on both interest and upfront costs, giving you an edge when rates are otherwise high.
4. Choose a lender you have good relations with
If you have a solid history with a bank or lender, this can work in your favour. Established customers who maintain good repayment records often have better negotiation power and can request preferential rates or terms. Build a strong relationship with your bank. You can do this by consistently handling accounts responsibly. This way, you not only improve loan access but also support favourable terms on future financial products.
Here are some additional tips to boost your credibility for a personal loan:
• Lowering your monthly debt obligations relative to income reassures lenders, leading to better loan terms. A DTI under 40% is ideal.
• Clearing small, outstanding balances on credit cards or other loans can quickly improve your credit utilisation rate, giving you a slight boost in creditworthiness before applying.
• A steady job history (at least one year) indicates income reliability, often resulting in lower rates.
• If eligible, a co-signer with a strong credit profile can lower your perceived risk to lenders, which may help you secure a better rate.
• Selecting a shorter repayment period often reduces the interest rate. While monthly payments might be higher, the overall interest paid is generally lower, which appeals to lenders
• Some lenders offer small discounts for borrowers who enable automatic monthly payments. This reduces the risk of missed payments, which is beneficial for both parties.
Conclusion
Securing a low-interest personal loan is only part of the journey. Once your loan is sanctioned, it’s vital to carefully review the sanction letter, as this document spells out the terms but isn’t legally binding until you sign the final agreement. Double-check for hidden fees, penalties or terms that may affect the total repayment cost. After disbursal, ensure timely payments to avoid penalties and protect your credit score, helping you maintain financial health throughout the loan term.
