Being an unsecured loan, lenders don't have collateral to fall back on in case of failure to repay the loan by the borrower. Thus, lenders have to rely on establishing the applicant's credentials before granting the loan. While personal loan attracts a high-interest rate, you can get it down if you know a few important tips. Let's look at four factors that play an important role in determining the interest burden of the loan.

• CREDIT SCORE:

A credit score is a score of your credit history between the numerical figure 300 and 900. A score of 750+ is usually considered favourable by most lenders. However, if this score is more than 800 and closer to 900, you can negotiate with your lender for a preferential interest rate.

• RESEARCH SKILLS OF THE APPLICANT:

Do not take the first offer you get when applying for a personal loan. Lenders come out with regular offers to lure new applicants. Research, compare and select the best lender that gives you the lowest interest rate personal loan. However, don't just stop at the interest rate when researching. Look at other factors as well, such as processing fees, penalties, foreclosure charges, etc., before making the final decision.





• NEGOTIATION SKILLS:

You do not have to accept the terms and interest rate that lenders quote you. You can negotiate with the lender to reduce the interest rate. Here are a few points to help you negotiate.

• Your Repayment History:

If this is your first loan, you may have little to negotiate with the lender. On the other hand, if you have a good repayment history with other loans, you can use this to negotiate for the best interest rate with your lender.

• Method of Interest Rate Calculation:

Do not just look at the interest rate offered by the lender. Delve a little deeper to understand the way this interest rate is calculated. You can choose between flat fluctuating or reducing-balance interest rate. In flat rate, the interest remains flat throughout the tenure. In the reducing-balance method, the interest is calculated on the reducing principal balance. While a flat rate may seem lesser, but a reducing-balance method may translate to a lesser interest burden.

• INCOME STABILITY:

Your income stability will help you get a low-interest rate on your personal loan. This assures the banks that you will have a regular flow of income throughout the tenure to repay the loan. To evaluate this, lenders look at two key factors;

• Employment History:

Lenders look at your employment history while reviewing loan applications. While most lenders require you to have a minimum work experience of 1 year in the same job, higher work experience can work in your favour for getting the best interest rates.

• Employers Rating:

Lenders look at your employer and may give you a preferential rate if it is an established and credible company.

Personal loans can be a great tool to meet immediate financial crunch. However, it is essential to ensure you get the best deal from your lender. Keep these tips in mind to avail loans at best interest rates.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.