A personal loan is the best credit instrument to meet the short term requirement on funds. What a borrower would want while applying for a personal loan is the interest rate. What does one want while applying for a personal loan? First the rate of interest being charged and second the speed of disbursal.
The banks and lending institutions keep advertising the attractive rate of interest rates but when one actually applies the reality hits hard. One may not be able to get the interest rate that was presumed. Now when the application has already been processed and there is a genuine need, one may not be left with much option but to accept the higher rate of interest. This may leave one with the thought of having got a raw deal. What should then one be doing to ensure that he is able to get the best deal on personal loan?
Awareness about the interest rates
First and foremost one must realize that the rates advertised by the banks are not a blanket interest rate to be extended to every borrower. The rates can vary drastically for two different borrowers within the same bank. The interest rates are an outcome of various factors including income, age, expenses ratio, city of stay etc. Other than this one’s credit profile which is also popularly known as CIBIL score calculation has a major impact on the interest rates being charged on the personal loan.
Check your credit report
Since the CIBIL score of an individual has an important role to play in the underwriting process, it is only prudent to be obtaining the CIBIL report before applying for a loan. It takes only few minutes to get the report. Check out if all your accounts have been updated properly and there are no anomalies. Since a study by Credit Sudhaar states that one of four reports has errors, there could be a chance of your score getting impacted for an error. Generally a score of 750 and above is deemed to be a healthy score and if your score is above 750, you are good to go for applying for that personal loan.
Check on your income expense ratio
This is again of high importance. Please be aware that generally the banks take 50% of one’s income as monthly expense towards living. The other part can be dedicated to servicing of the EMIs. Put together the existing loan and credit card obligations and the EMI of proposed loan, the amount cannot be more than 50% of the income. So calculating it before applying will only help in faster access.
Pay off credit card balance or close a loan
In case your EMI obligation is going beyond the 50% ratio, you may be required to pay the credit card outstanding or close an existing loan. This will help in you getting the approval.
Hunt for the best deal
It is recommended to get offers from multiple lending institutions before applying for the loan. This will give one the power of bargaining and getting the best deal. Generally, the bank where one has a relationship is where the loan is applied. But it is not necessary to get the best deal with one’s own bank. So checking out with others will only help.
The key would be to give all required details but not to actually apply. Every time one applies the lender runs an inquiry on the credit bureau and multiple inquiries can bring down your credit score. Also, this may get perceived as credit hunger by the underwriter and may be one of the reasons for shooting up the rate of interest on the loan.
Check on the offers
There are times when there are offers from the manufacturers and the banks where one can get a better deal in terms of the overall cost. Say for example, one is looking at buying new furniture or electronics items, do check out with the manufacturer or the retail store if there is an offer from any of the banks. There are special offer running during festive seasons that may make the deal over all quite attractive even if a marginal higher rate gets charged.
Negotiate for charges
Interest rate is not the only component. There are other charges that one needs to watch out for. Processing fee, pre-payment penalties, lock in period are few such charges that shoot up the cost of borrowing. Negotiate for a lower processing fee since it will save on the upfront charges. In case you wish to prepay the loan, a lower foreclosure charges will help. Similarly, reduction of lock in period can only help you saving money being paid as interest should you decide to close the account earlier.