Need some quick cash but want to get it done the cheapest possible way? Personal loans are your best bet! Since the interest rates on personal loans are relatively lower than other unsecured forms of credit, it is a top option for many. But how exactly do you secure the lowest interest rate for your personal loan? Is there are a certain strategy you should follow to get the best deal? Let’s find out!
How Are Interest Rates Set Against Personal Loans?
Even before we explore the ways of getting the lowest interest rate offer, it is important to understand how interest rates are set against instant loans. So, how does it work?
Usually, most lenders use the risk-based pricing approach while fixing a rate on a personal loan. As you’d guess from the name, this method assesses the degree of risk you pose as a borrower according to your credit score and a variety of other factors. Lenders use this method along with few other details to determine your Annual Percentage Rate.
So, if your credit history indicates that you’ve made timely payments, there are lesser risks involved in sanctioning the loan to you. This is when you end up with a low interest rate against your personal loan.
In addition to the credit score and credit history, your annual income, employment status, and existing debts will be taken into consideration while setting an interest rate against the loan.
Maintain a Good Credit Score
You credit score determines your creditworthiness by assessing how you managed and handled credit in the past. So, if you’re really looking for the lowest interest rate on your quick personal loan, start off by building a good credit score. Ideally, a credit score of 700 to 750 helps you land the lowest interest rates. This will also help you enjoy flexible repayment terms. So, if your credit score is low, start working on it right away! You can do this by paying off your pending bills and disputing incorrect credit records.
Very often, we tend to settle with the first personal loan offer we come across. But this won’t help you get the best deal. In order to strike the lowest interest rate, try comparing the personal loan offers from various credit institutions. And while you do this, do not limit yourself to banks. Right now, there are several alternative lending platforms that offer attractive interest rates on your personal loans. Qbera, for instance, offers personal loans starting from 11.99% p.a. So, explore, look around, and read the fine print before signing the dotted line!
Go for Shorter Tenures
While longer tenures result in affordable monthly installments, they might not be the best option if you’re looking to cut down on interest payment. So, instead of choosing a long tenure, opt for the shorter ones. Although this might result in higher monthly installments, it’ll eventually reduce the amount of money you pay as interest. What’s more, your initial interest rate too is likely to be on the lower end if the tenure is short. This is because the arrangement involves lesser risks for the lender. That said, do not go for short tenures if you cannot afford the monthly installments. This might jeopardize your financial situation, eventually landing you in a debt trap.
Bottom Line: So, now that you have a clear idea about securing the lowest interest rate on your private personal loan, follow our guidelines to get the best rate!