A personal loan is an unsecured loan given by a financial institution without any collateral or tie-up with an asset belonging to the borrower. Hence, it attracts higher rates of interest compared to other loans such as car or automobile loans. The advantage of this loan is that you can apply for a personal loan online when you need funds urgently and can use it for a variety of reasons such as your children’s education, a holiday, home renovation, for wedding expenses of your children or siblings, a medical emergency, paying off credit card bills and more. Unlike a car loan which is only meant for buying a car or a home loan which can be used only to purchase a house, a personal loan offers you complete control and flexibility to use the funds as you wish. The process of eligibility calculation, approval and disbursement are also relatively quicker for personal loans vis-à-vis other loans.

Personal loans can be availed for amounts ranging from Rs. 10,000 to Rs. 3 lakhs and repayment tenure can vary from 12 to 60 months.

There are several financial institutions that offer personal loans at competitive interest rates. And thanks to technological advancements, if you want a personal loan, apply online and you can get it within minutes. While applying for and getting a personal loan could be easy, ensuring you get the best rate of interest is difficult. Here are some smart and easy tips that can help you get a personal loan at favourable interest rates:

1. Make sure you have a good credit score

Since a personal loan is an unsecured loan, the risk is obviously high for the lender. Your creditworthiness is, therefore, the most important criterion. In India, credit rating agencies maintain extensive accounts of the credit activities of individuals and companies. This includes records of your credit card spends, active loans, repayments, late payments, defaults and so on. The credit score is a three-digit number that reflects the creditworthiness of an individual based on the summary of his credit history and profile. A high credit score means more creditworthiness for the borrower and lower risk for the lender. 

A good credit score also tells the lender that besides having a good track record for repayment, you have a diverse mix of credit and are capable of handling different debt forms. The better your credit score is, the more negotiating power you have; you can request better interest rates by showing that you are a responsible, low-risk borrower.

You can easily check your credit score online. If it is not at the desirable level, you can take steps to improve it by ensuring timely repayment of loan instalments and credit card dues.

2. Make the best of your designation and professional credentials

Individuals employed in reputed organisations and drawing a high salary, and self-employed professionals or entrepreneurs with a good and steady income can get lower interest rates. If your employer has a good relationship with lending institutions you can use it to your advantage to negotiate for better interest rates. Your income will be compared to the loan amount you are availing and your interest rate, to a certain extent, will depend on this ratio. For a personal loan apply online and you may be asked to share the details of your ITRs (income tax returns) from over the past three years. This will tell the lending institution how much and how steady your income has been and they can extrapolate how it is likely to continue over the next few years. This assessment indicates your repayment capacity in the coming years and the level of risk you pose.

3. Avail seasonal offers

Watch out for seasonal offers from lenders that include discounts on processing fees and low-interest rates, and sometimes even pre-approved loans. These are generally offered during festive seasons or sometimes even during low-activity times when the lenders have excess funds. Seize the opportunity to avail such offers immediately.

4. Compare terms and conditions

Nowadays, to avail personal loan, apply online and you get a host of offers from different lenders. There are numerous financial institutions that offer personal loans at varying interest rates, repayment schedules, tenures, processing charges and so on. Go through each offer carefully and compare all the terms, check potential monthly instalments, work out exactly how much you will have to repay and only then decide.

5. Check the lender’s reputation

While you compare offers, make sure that the lending institution also has a good reputation.; Check how flexible they are, are they open for negotiation, the service they provide, discounts on interest or charges offered and so on.

6. Check the method of interest calculation

Each financial institution has its own method for calculating interest on the loan amount offered such as flat rate, reducing rate and more. A low rate is not always a guarantee of a lower amount of interest. Check and compare the method they use for interest calculation, and determine the actual interest you will end up paying. 

7. Check for pre-approved loans

With internet transactions becoming common, you can simply log in to check if your financial institution is offering any pre-approved personal loans. As these are offers your lender is giving you without your enquiring, they are likely to be given at lower rates of interest.

Hopefully, this article has given you some simple tips and tricks to ensure a better credit score and avail personal loans at more favourable interest rates.