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4 Ways to Get the Ideal Personal Loan Interest Rate and Tenure

This guest post is contributed by Satchit Hasabnis, co-founder loanbaba.com.

A personal loan, as understood, is a collateral-free loan, which can be used for any expense. Thus, if you take this loan, there will be no restriction on the end purpose of the funds. Many take the funds to meet immediate financial requirements like a medical emergency, travel, education fee, even debt consolidation. Or, use the money for a big-ticket purchase, home renovation, wedding, etc. Basically, this kind of funding is a key to overcome all your monetary woes.

Impact of Interest Rate and Tenure on Your Personal Loan
When looking for a personal loan, there are two things which you must keep in mind. Firstly, look for the lowest interest rate and fee, and secondly, check for offers that give flexible tenure and repayment options. The interest charged on the loan and the selected tenure will, after all, affect the overall cost of the loan. Lower the interest; the lower will be the cost of the loan, and vice-versa.

Similarly, the tenure also has a great impact on the total cost of the loan. If you can afford to pay heavier EMIs and close the loan sooner, then do choose a shorter tenure, which will help lower the total interest payout. Longer the tenure, higher will be the interest payout. But do not financially stress out yourself, and select tenure, on which you can afford the EMIs. So, if a longer tenure is what you can think works the best for you, go for it.

As you now know the importance of tenure and interest rate in the cost of a personal loan, below we have suggested certain tips that you can utilize to secure the best rate and tenure offer.

1. A Good Credit Score
Your credit score tells the lender about your repayment history. The higher the score better is your creditworthiness, which convinces the lender to offer you the lowest interest rate and flexible tenure choice on your personal loan. To improve your score, you must make timely repayments on debts. Once you do so over a period of time, you can expect your personal credit rating improve significantly. There are three major credit bureaus from which you can request for your credit report from; these bureaus are TransUnion CIBIL, Equifax India, and Experian.

For instance, CIBIL score ranges between 300 and 900. The closer your credit score is to 900, the higher the chances of being considered as an ideal person to trust with credit. CIBIL score 750+ is considered as excellent, and anything lower may dissuade the lender from lending you money. There are several ways to boost your credit score, which we have mentioned below:
  • Check your credit report regularly, maybe once or twice in a year. Personal enquiry for credit report is considered as a soft enquiry so you need not worry of the score from being affected adversely. Check for any error, repayment track record, credit utilization, etc. Any discrepancy noted must be reported to the credit bureau and rectified. After all, errors in credit report can hamper your credit score.
  • If you are taking loans, maintain a healthy mix of secured and unsecured loans. Depending too much on unsecured loans may make lenders wary of your credit behaviour.
  • Try to limit high loans on credit cards. Even if you use credit card for payments, make regular payments of the bill with as less as possible any balance carryover to the next billing cycle.
  • Do not exceed your credit limit. Keep sufficient disposable income after taking care of all your financial liabilities. Your debt ratio must not exceed your income.
  • Try never to miss or delay payment, as it may affect your credit score negatively.
  • If you ever co-sign a loan or become a guarantor to a borrower, then you will be held accountable for any default made by the primary borrower. Thus, co-sign a loan or become a guarantor only if you are sure that the borrower will not default on the loan.

2. Your Employment History and Reputation of the Employer
As a personal loan is unsecured in nature, which means, you do not have to submit collateral to the bank to get the funds, the lenders are stricter when it comes to the eligibility criteria. Two major criteria for judging your ability to take this loan are: 1) Job stability 2) The employer’s credibility. Both are important, but the former is more important than the next. Of course, your regular monthly income also counts. But, if you hop jobs often, this may count against you.

On the contrary, a stable job and income will encourage the lender to offer you tenure of your choice as per the repayment capacity. Also, the interest rate quoted will be the lowest possible. Similarly, if you work at one of the most reputed organizations, you can get through personal loan schemes for that specific company, which can carry a lower rate of interest than one, offered to regular customers.
  • Stability in a job proves you to be a financially responsible person and someone who can afford to pay the dues without missing repayments.
  • People employed with leading MNCs, government institutions, and reputable organizations may be able to secure a rate and tenure of their suitability.
  • There could be special personal loan schemes and offers for certain self-employed people as well, such as Chartered Accountants, lawyers, doctors, etc.

3. Compare Personal Loan Interest Rates and Tenures across Financial Institutions
You may think that the bank that you already have an account with, will offer the best interest rate and tenure due to the long and stable relationship maintained over the years. Well, this is not entirely untrue because banks do offer discounted rates and best tenure to the top and trusted customers, but a good or an existing relationship with a financial institution is not the sole factor to offer you the lowest rate possible.

Thus, you must widen your options of lenders, and check for all the leading personal loan offers across different banks and NBFCs. Not only the interest rates, but you must also check for other fees and charges, such as the processing fee, penalties possible, prepayment fee, foreclosure fee, etc. After a fair comparison of interest rates and charges, along with services and facilities offered, you need to pick a deal that is most suitable for your need and pocket.
  • These days, you can compare personal loan interest rate and tenure offers online. No need to walk into a bank-branch for details. If your lender has a website, then it may state all the personal loan offer details.
  • Then there are aggregators that have tie-ups with lenders, whose offers you can compare and apply for under one roof.
  • Lookout for seasonal and festive offers on personal loans. You may be in luck for a good deal, like no EMI for the first month, no pre-closure fee, or a discount on the rate, etc.

4. Understand the Interest Computation Method
The lender may offer a low interest rate, but at the end of it, you may still pay a higher interest amount throughout the loan tenure, than that on a loan offering a higher rate. This can be surprising, but the secret of such a situation lies in the method of calculating the interest payable. The interest computation method can differ from a bank to another. Thus, before taking the loan, you must understand the calculation method applied on the payable interest.
  • The financial institution can offer a personal loan on either reducing rate of interest or a flat rate of interest.
  • In case of a flat rate of interest, the interest payable is calculated on the complete borrowed amount over the entire tenure.
  • In case of a reducing interest, the payable interest is computed on the principal outstanding, wherein the EMIs gradually reduce the original principal amount.
  • Thus, a flat rate interest rate could result in the personal loan to get costlier than one on a reducing rate.

To Conclude
It is imperative to look in the lending marketplace for different personal loan offers, and study the details related to eligibility criteria, tenure and interest rate offered, along with other charges and fees applicable. This will help you get a realistic understanding of current offers. So if you want to secure the best of everything in a loan scheme, firstly, you must have a convincing personal and professional, not to mention, but also, financial profile.

Secondly, you must lookout for opportunities that can turn the tables in your favour for a good personal loan tenure and interest rate, like the ones we mentioned: seasonal offers, good relationship with the financial institution, excellent reputation of your employer, your job stability, etc. If you follow these guidelines, we are sure that you will receive the most ideal personal loan offer for yourself.

Author bio:
satchit-hasabnis
Satchit Hasabnis is a Chartered Financial Analyst with more than a decade of experience in Fintech industry.  He has co-founded loanbaba.com, which provides quick and easy personal loans, small cash loans, business loans, gold loans, credit cards, and a lot more.

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