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How can I get a lower loan interest rate?
The interest rate is arguably the biggest factor that you need to consider when applying for a loan. This is simply due to the fact that the interest rate has a significant impact on the monthly EMIs that you would have to pay. The higher the interest rates, the higher your EMIs are likely to be.
That’s why it is extremely crucial to land a loan with low interest rates. This way, you can significantly reduce your financial burden. But then, how do you do it? Fortunately, there are a few ways through which you can do it. And we’re going to take a look at them in this chapter of Smart Money. Continue reading to find out.
How to get a low loan interest rate?
Just because there are ways in which you can get a low interest rate doesn’t mean that it is easy to get it. In fact, it requires quite a bit of work. Here’s an overview of the different ways in which you can achieve this feat.
Ensure that you have a credit score of at least 750
When it comes to determining your loan interest rate, your credit score is a major contributing factor. The higher your credit score is, the lower your interest rates are likely to be. This is because banks and financial institutions view individuals with high interest rates as low risk for default. And so, they’re more likely to offer low interest rates in return for the increased security.
That said, if you find that your credit score is less than ideal (i.e. lower than 750), don’t worry. With just a few easy tweaks, you can increase your score in no time. Here are a few things that you can follow.
- Make all your loan and credit card payments on time.
- Refrain from utilizing more than 30% of your total credit.
- Keep your old credit cards active to create a long credit history.
- Have a good mix of different loans and credit facilities.
- Refrain from applying for multiple loans in quick succession.
- Don’t have too many unsecured or high interest loans.
Compare different loan offers from multiple lenders
Going with the first ever lender that you get in touch with for a loan may not always be the best idea. This is because different lending institutions offer differing interest rates on loans. What this means is that while one lender may quote a high interest rate, there will definitely be others who quote lower rates.
And so, it is important to get in touch with multiple lenders when attempting to apply for a loan. By doing so, you can easily compare and contrast the different loan offers and arrive at the one that offers you the lowest interest rate.
Leverage your relationship with your bank
Before you jump to get in touch with a bank or an institution with whom you haven’t had any pre-existing relationship, stop and reassess your position. Many banks and institutions tend to favour existing and long-standing customers when it comes to loans and credit facilities.
So, if you find that you have a pre-existing good relationship with a bank or a financial institution, it may be a good idea to get in touch with them regarding your loan. Doing so can more often than not lead you directly towards lower loan interest rates when compared with other financial institutions.
Utilize your professional credentials
When evaluating individuals who’ve applied for a loan, lending institutions generally take a look at their occupation and income levels before arriving at a loan offer. Therefore, if you find that you have a high enough monthly income with not many significant financial liabilities or obligations, it may be a good idea to leverage this position of yours to negotiate a low interest rate for your loan.
That’s not all. If you work with an organization that enjoys a good reputation, you can also use that information to get better rates as well. Just make sure to produce proper information in the form of salary slips, income tax returns, and proof of employment.
Lenders typically tend to view people who have higher incomes and little financial obligations as individuals of low-risk. And consequently, they’re likely to reward these individuals with lower loan interest rates.
With this, you must now know what it takes to get lower interest rates on your loan. The next time you feel the need to opt for a loan or a credit facility, make sure to give these points a try. In the forthcoming chapter, we’re going to take a look at whether you really need a loan and the kind of situations where taking a loan is okay.
A quick recap
- The interest rate is arguably the biggest factor that you need to consider when applying for a loan.
- The higher the interest rates, the higher your EMIs are likely to be.
- When it comes to determining your loan interest rate, your credit score is a major contributing factor.
- The higher your credit score is, the lower your interest rates are likely to be.
- Different lending institutions offer differing interest rates on loans.
- Get in touch with multiple lenders, compare and contrast the different loan offers, and arrive at the one that offers you the lowest interest rate.
- Many banks and institutions tend to favour existing and long-standing customers when it comes to loans and credit facilities.
Leverage your financial position to negotiate a low interest rate for your loan.
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