Personal loans can be great for when you need them most, whether that’s to fund a big purchase, consolidate some debt or cover an unexpected cost. But, before you sign on the dotted line, one of the most important things to think about is the interest rate of personal loan. Although personal loan interest rates tend to be fixed, they’re not always set in stone – if you know how to, you can barter it down.
This blog will help you understand how to negotiate personal loan interest rates and maximize your savings.
Why Negotiating Personal Loan Interest Rates is Important
The interest rate on personal loan can greatly impact your total cost. Even a slight reduction in rate percentage can help you save substantial amount. For instance, 1% of reduction with a ₹10 lakh loan for tenure of 5 years will let you save thousands of rupees over interest payments. You can bargain to get better terms on your loan that suit your financial situation.
Factors Affecting Personal Loan Interest Rates
Before we proceed to the negotiation strategies, let’s understand what are those factors that lenders look at to decide your personal loan interest rates:
Credit Score: A high credit score (usually above 750) reflects responsible credit behavior indicating you as a low-risk borrower and thereby, lenders are ready to offer you lower fixed interest rates.
Income – High and steady income increases your repayment capacity and thereby chances of loan eligibility at better terms.
Loan Tenure: Longer loan tenures often carry higher variable interest rates as the lenders risk exposure is longer.
Debt-to-Income Ratio: If your existing monthly debt load is too high compared to your income, then it is possible for the lenders to either charge a higher interest or refuse to negotiate with you.
Top Tips and Strategies for Negotiating Personal Loan Interest Rates
Improve Your Credit Score
One of the key factors that lenders consider while deciding your interest rate is your credit score. If you have a lower credit score, it’s advisable to improve it before applying for a loan. Pay off your existing debts, clear any overdue balances and keep your credit utilization ratio low to improve your score. With a high credit score, you will be in a better position to negotiate and get a low personal loan interest rate.
Compare Offers from Different Lenders
Different lenders may have different personal loan interest rates for the same loan amount. So, it is important to shop around and compare the interest rates, processing fees and prepayment charges (if any) before finalising the lender. You can also use the offers as leverage to negotiate with your preferred financier.
Consider a Shorter Loan Tenure
Believe it or not, longer loan tenures come with a higher interest rate. Shortening your tenure may help you negotiate for a lower rate. Lenders perceive shorter tenures as less risky because you repay the loan more quickly. That said, make sure you can afford the hiked up EMIs of a shorter tenure before opting for one.
Highlight Your Financial Stability
If you’re lucky enough to have a stable, high-paying job, mention it when negotiating. A large income will help convince the lender that you can afford to make regular payments. Lower interest rates are given to borrowers deemed less likely to default on payments. You may also want to show other assets or investments that contribute to your financial security.
Use Existing Relationships with the Lender
The good thing is that, you can attempt to negotiate a lower interest rate on personal loans since you already have a relation with the bank by having savings accounts, fixed deposits or credit cards. Banks love customers and if you play your loyalty card they might be willing to give you a better deal. What’s more, lenders may offer their clients attractive rates.
Negotiate the Processing Fees
Though not linked directly to the personal loan interest rate, processing fees can raise the cost of the loan considerably. Request the lender for reduction or waiver of processing fees during negotiations. Even if you do not get a reduction in interest rate, reducing this extra expenditure will still save you money.
Opt for a Secured Loan (If Possible)
Secured personal loan is for you if you are ready to offer a collateral — be it your property, gold or any other asset. A secured loan comes with low interest rates as lender’s risk is already minimised. If you are sure about repaying the loan and get the added advantage of negotiating better terms by securing it with an asset.
Time Your Loan Application Strategically
Lenders usually have times in a year when they want to increase their loan disbursal numbers like festive seasons or end of financial year. Apply during such times as lenders come out with promotional interest rates or show more desperation to negotiate and meet these numbers.
Final Words!
Negotiating personal loan interest rates can save you big money in the long run, and with Ruloans, you have the power and tools to secure the best deals. Whether you are looking to grow your business as Personal Loan DSA or want to enjoy the benefits of personal loan deals for yourself, Ruloans is here to help you with every step.
Join Ruloans today, get attractive interest rates and with Ruconnect App - India's First B2B loan distribution channel partner app avail unending opportunities in loan distribution. Be a loan agent or DSA loan agent, our platform let dsa partners make most out of the online personal loan market efficiently.
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