Ever wondered why some people pay lower interest rates on personal loans than others? Even a reduction of 1% can save you thousands over the term. Personal loans are an essential financial service that helps majorly during unexpected situations like emergency medical expenses or urgent home renovations. However, the interest rate charged on it can make or break the deal. Fortunately, there’s always room for negotiations, but it depends on various factors. 

In this guide, we’ll dive deeper and learn about how you can secure the lowest interest rate for personal loans, understand how interest works and more.

Understanding Interest on Personal Loans

Interest rates are the extra cost charged by lenders when you borrow a personal loan. You can apply for personal loans via private financial institutions, online platforms or public banks. While the interest rate varies from lender to lender, typically, it starts from 10.5% per annum. However, the percentage can be lower or higher depending on factors like CIBIL score, relationship with the lender, income, etc.

Here are the two types of interest rates:

• Fixed Interest Rate: When the rate remains constant throughout the tenure, giving a clear idea of monthly payments.

• Floating Interest Rate: When the interest changes over time depending on the market conditions.

Pro Tips to Negotiate the Lowest Interest Rate for Personal Loan

Negotiating for the lowest interest rate on a personal loan is not as difficult as it sounds. Here are some tips to help you:

• Maintain High Credit Score: A good CIBIL score (potentially 750-900) is a powerful negotiation tool for borrowing personal loans. It assures lenders that you are a lower-risk borrower who can repay quickly. Check your credit score and take steps to improve it, like paying off existing debts on time or reducing credit card debts.

• Compare Lenders: Before signing the documents, compare offers from different lenders, including private banks, online platforms like Stashfin, and public institutions. Choose a competitive deal that best suits your current situation.

• Use an EMI Calculator: You can use a personal loan EMI calculator to calculate estimated monthly payments accurately. The costs are calculated based on the loan amount, tenure, and interest rate. You can compare the monthly payment based on different interest rates the lenders offer and choose the best deal.

• Look for Seasonal Offers: Some platforms offer loans at promotional interest rates during festive seasons, year-end, or other occasions. Keep an eye out for special offers and apply when the time is right to lock in a better interest rate. 

• Income: Highlight your financial stability by submitting proof of income and healthy savings to assure the lender that you can repay the funds. A stable and high income helps you get a loan with a lower interest rate.

• Loan Amount and Term: If you are applying for a loan of a lower amount with a shorter tenure, the provider may reduce the interest rate. However, if you are a loyal customer with a long-standing relationship, you can always try negotiating directly with the lender. 

Factors to Consider When Negotiating

Before negotiating for the lowest interest rate for personal loan, keep in mind certain factors to make the whole process easy and successful:

• Assess your repayment capacity based on the current financial situation. Before committing, ensure that you can afford to pay the funds.

• Your debt-to-income ratio should be less, as lenders charge lower interest rates if you have minimal existing debt and maximum disposable income.

• Income should be stable and higher as it assures the provider that you can make repayments in time.

Non-Negotiable Factors of the Loan

Since you can ask for lower interest rates based on certain factors, here are some that can’t be negotiated:

• Government Fees or Taxes: Any charges related to the government are non-negotiable as they are fixed and not in the lender's hands. 

• Processing Fees: These are the fixed administrative charges every borrower pays to prepare loan documents. 

• Prepayment Charges: If you repay the loan amount early, some lenders charge a prepayment fee, which is fixed for every borrower. You should read the fine print carefully and check all the charges, terms, and conditions before signing the loan.

Conclusion

Negotiating interest rates can save you a specific amount over the tenure. Remember to improve your credit score, research the lenders, and negotiate directly to get a better deal. When you’re ready for a personal loan apply, make sure to consider all the factors and choose a trusted lender like Stashfin for a smooth and convenient loan application.