A Personal Loan is an excellent way to manage unexpected expenses or consolidate debt. However, the biggest concern for borrowers is the Loan costs, especially the interest rates. Fortunately, there are several strategies you can use to reduce your Personal Loan interest and save a substantial amount on your repayments. Here are hacks to help you get the best deal and lower interest payments:
- Strong credit scores
A credit score is important to determining your Personal Loan interest rates. Lenders refer to your credit score to analyse the lending risk. The better your credit score, the lower the interest rate offered. It is because lenders see you as less of a risk. Improving your credit score increases the chances of securing a lower rate, saving you money in the long run.
- Shorter Loan term
A longer Loan term is attractive because of the lower monthly repayments. Shorter Loan terms often come with a higher interest rate. Look at shorter Loan durations to see if you can afford higher repayments. Although the monthly repayment may be more, the overall interest you pay over the Loan life will be lower.
For example, a 5-year Loan might come with a higher interest rate than a 3-year Loan. While the monthly repayments will be higher on a shorter-term Loan, the total interest you pay over the life of the Loan will be less. If you can afford the higher EMI, a shorter Loan term is a better option to save on interest.
- Shop around for the best deal
Not every lender offers identical Personal Loan interest rates, so it’s important to shop around before committing to a Loan. Different financial institutions have varying rates, terms, and conditions. Online comparison tools simplify this process by quickly comparing rates from multiple lenders.
Also, look out for any special offers or promotions that lenders may offer, such as discounted rates for first-time borrowers or specific Loan amounts. By comparing NBFCs and Loan options, you can find a Loan with a lower interest rate, saving you money in the long term.
- Make extra repayments
Another effective way to reduce overall Loan costs is to make extra repayments whenever possible. Many Loans let you make additional payments without penalty, which can reduce the principal balance faster. As the balance decreases, so does the interest charge. Even small additional repayments can make a significant difference over time.
For instance, if you get a bonus at work, a tax refund, or any other unexpected money, use part of it to make a lump-sum repayment on the Loan.
Conclusion
In India, where Personal Loans are increasingly popular for managing expenses and consolidating debt, being proactive about managing interest costs can make a big difference in your financial health.
Reducing Loan interest rates requires careful planning, research, and positive financial habits. With these strategies in mind, you are on your way to saving big on your Personal Loan repayments.
