There may be times when funds are required quickly - for a wedding in the family, a holiday, or a medical emergency, and so on. During such situations, you may not want to redeem your savings. You may also not have any collateral to pledge. Hence, a personal loan turns out to be an effective source of funds. This is because lending institutions allow you to borrow in the form of a personal loan without collateral and have not laid down any restrictions on reasons for which one could borrow. However, one must also be careful before applying for a personal loan, since the interest rates are higher when compared to secured loans. Personal loan interest rates are offered based on the applicant’s profile, requirements and the lender’s policies.
How can I Reduce the Personal Loan Interest Rate?
Here are some of the factors which could help you make an informed decision and get the best offers when it comes to personal loan interest rates:
- Prepaying Loans
Prepaying any existing loans helps in reducing the personal loan interest rate to a significant extent. This is because repaying loans helps in reducing the burden of monthly repayments and helps in saving interest to the extent of the loan repaid.
- Repay Outstanding Debt
Having multiple outstanding debts leaves you with less disposable income to repay your personal loan resulting in high rates of interest. To be able to repay outstanding debt, it is a good idea to list down your debts in decreasing order based on their rates of interest. Prioritise repaying debt with a higher rate of interest followed by debt with a lower rate of interest. Paying off bigger loans faster helps in creating disposable funds to repay your personal loan faster, reducing the loan payable and thereby helpful in reducing the personal loan interest rate.
Applicants repaying a home loan can consider opting for a top-up loan at comparatively lower rates of interest as compared to a personal loan. Repaying the loan faster than the expected repayment tenure will result in reducing the loan amount, thereby reducing the interest burden. Select loan providers might require you to transfer the balance before opting for this feature.
Must Read: 6 Factors that Affect Your Personal Loan Interest Rate
- Loan Balance Transfer
Personal loans, on account of being unsecured loans, have a high rate of interest resulting in a high-cost loan. Lending institutions allow you the benefit of refinancing/transferring the balance of your loan to lenders offering lower rates of interest, thereby reducing the repayment burden to a significant extent.
- Debt Consolidation Loan
If you are dealing with the burden of repaying multiple loans in addition to your personal loan? Debt consolidation might be the solution to your repayment woes. Consolidate all your debts into a single Debt Consolidation Loan and avail the benefit of a lower rate of interest in addition to a host of other benefits. Lending institutions offer a further discount to applicants with an excellent credit score, thus allowing persons with an excellent credit score to avail of lower rates of interest.
In addition to being one of the most convenient ways of borrowing to fund your expenses, borrowing a personal loan and repaying without defaulting on your payments can help in improving most parameters that are the building blocks of your credit score.
- Maintain a Good Credit Score
Having a stable income, maintaining a good credit score with a clean history of repayments and a very low debt-to-income ratio ensures your eligibility for a personal loan and getting better interest rates.
Must Read: 4 Things To Do If Your Personal Loan Gets Rejected
What is the Basic Eligibility to Apply for a Personal Loan Online?
The criteria to apply for a loan includes:
- The applicant should be aged between 21 to 60 years and should be salaried or self-employed.
- The applicant should possess work experience of at least one year and work experience of a minimum of six months working for the present company.
- Salaried professionals should earn a minimum of Rs. 25,000 in metropolitan cities and Rs. 20,000 in cities all over India. Self-employed professionals are expected to earn a basic minimum turnover after tax depending on the type of business they are engaged in.
- A healthy CIBIL score can help in availing a loan easily at competitive rates of interest.
What Documents Require to Be Submitted While Applying for a Loan?
The documents required to be submitted while applying for a personal loan include:
- Salaried employees are required to submit a copy of their salary slip of the previous three months and records of their salary account of the previous six months.
- Self-employed applicants are required to submit proof of their business earnings and furnish records of their current account statement of the previous six months.
- KYC documents that might include PAN, AADHAR Card, etc.
If you are considering opting for a loan, our personal loan EMI calculator can help you obtain an estimate of the monthly EMIs payable, thereby helping you select an appropriate loan tenure as per your budget. Regardless of which option you opt for, staying committed to your course of action is what will help provide a solution to the question, ‘How to reduce personal loan EMI’?.