A personal is one that comes with its own pros and cons. Though the personal loan can be used for a lot purposes it does come with a higher interest rate.
This higher interest rate is because personal loans are unsecured loans and carry a lot of risk. Banks do not know if you have the capability to repay the loan and thus to mitigate the risk they fix a higher interest rate for personal loans. But as a borrower it will be difficult for you to pay the loans at such high interest rates each month as it will be a strain on their income, if you are looking for ways to reduce the interest rate, read on!
Ways to reduce your interest rate
1. Check your credit score: We cannot stress this enough, before you even think of going for a loan it is best to check your credit score and credit report. If you have a good credit score (750 and above) then you have paid all your dues on time and are an ideal customer for the bank. This gives you the upper hand in any negotiations to get a better deal on your loan.
At the same time another advantage to checking your credit score is you can rectify any negative points on your report as a bad credit score is grounds for loan rejection.
2. Do your research: The market has many lenders who offer personal loans at competitive rates and sometimes this information could be hidden. This is a due diligence that you need to do so that you get the best deal.
3. Negotiate with the bank:
If you are in good standing with the bank you have your savings account, who knows about all your salary details and expenses with the added advantage of good credit score you can negotiate good terms for your loan. If this does not come to any fruition, then you can look for a suitable lender that gives you the best for your credit score. However, it is important to calculate the costs involved in prepaying your loan with your existing lender and to ensure that the costs are not greater than the savings you will gain with your new lender.
4. Ask for a longer tenure: If you have a long loan period, your EMI reduces proportionately as your principal and interest is divided over a greater number of months. However, while the actual monthly outflow will be smaller, you will be paying out EMIs for a longer period and paying interest for a longer period. So, while your monthly burden might be smaller, you might end up paying more over the entire duration of the loan.
5. Making an early prepayment: One way to significantly reduce your is to make an early pre-payment. If you are able to afford the option of prepaying part of your loan, it is better to do it in the early months/years of the tenure so that your principal decreases, thereby saving you interest on later payments.
By following these steps, you can reduce the interest and EMI on your personal loan. You will need to analyze the pros and cons for each step before choosing to go ahead.