Lenders consider various factors when approving personal loan applications, of which key factors are credit score, monthly income, job profile, and employer’s profile of the loan applicants. Risk-based pricing of loans has also prompted lenders to consider these factors when determining interest rates for personal loan applicants.
Here are 3 tips to help you avail personal loans at lower interest rates.
Improve your credit score
Lenders consider credit score as one of the first factors when evaluating personal loan applications. Applicants with credit scores of 750 and above have higher chances of getting their personal loan applications approved. Such customers are also considered more financially disciplined and thus, pose a lower credit risk to lenders. As most lenders follow the practice of risk-based pricing, they offer lower interest rates to applicants with higher credit scores. Applicants with lower credit scores are either rejected or charged higher interest rates to compensate for the lender’s higher credit risk.
Therefore, build and maintain a strong credit score to improve your personal loan eligibility and increase the chances of availing personal loans at lower interest rates. For this, you should follow healthy credit practices such as avoiding multiple credit card or loan applications within a short time frame and repaying your credit card bills and EMIs on time. You should also monitor the loan accounts guaranteed or co-signed by you. Doing these will steadily improve your personal loan eligibility.
Any errors in the credit report can lower your credit score, so you should check your credit report at regular intervals, spot any clerical errors in them and get them corrected by the concerned bureau. A rectified credit report will increase your credit score and improve your personal loan eligibility. You can get free credit reports and monthly updates from online financial marketplaces.
Check with lenders you have existing banking relationships
Several lenders offer personal loans at lower interest rates to their existing customers or those with lending or deposit accounts with them. Therefore, when planning to avail personal loans at lower interest rates, consider contacting the lenders with whom you have a standing banking or lending relationship. You can use their personal loan features and interest rates as a benchmark to compare the rates offered by other lenders.
Compare different lenders to get the best offer
Lenders may charge different personal loan interest rates based on their credit evaluation process and risk factors. Therefore, before applying for a personal loan with a specific lender, consider comparing the personal loan offers from different lenders. For this, you can visit online financial marketplaces to get multiple personal loan offers based on your credit score, job profile, income, employer’s profile, etc. Also, avoid restricting your loan comparison to interest rates only. Make sure to compare other loan features, like loan amount, processing fee, repayment tenure, etc., before finalizing any specific lender.