Personal loans are among the best financial tools that you can use to fulfil your monetary needs.These instant cash loans come with many attractive features. However, the only factor that matters the most when it comes to using a personal loan is the interest rate.
Are you paying a high-interest rate on your personal loan?
Today, many lenders offer personal loans at competitive interest rates. You can check out the best loan appand discover the best deals on personal loans. Thus, even if you have availed a personal loan at high-interest rate, there are a few smart ways that can help you lower your interest rate burden.
Read on to discover 7 smart solutions to lower your personal loan interest rate
Ways to lower your interest rate on an ongoing personal loan
The interest rate on the loan is one of the most crucial factors that you must consider while applying for an instant cash loan. However, there are times when you may find yourself serving a higher intereston your personal loan. Thankfully, there are ways to reduce the interest payout on your ongoing loans as well. Check out these 7 tips –
1. Opt for a loan transfer
The transfer of your personal loan to a new lender is one of the most common strategies to reduce the interest rate. Many lenders reach out to borrowers offering loan transfer facilities. They offer a reduced interest rate as compared to the one you are currently serving. You can also check out the interest rates offered by the best loan app.
However, there are a few things that you must consider carefully before opting for a loan transfer. Firstly, check with your existing lender if they have pre-closure and loan transfer facilities. Secondly, the total charges that you will have to bear for the loan transfer process should be less than your savings on the interest. Thirdly, you must maintain a steady repayment record to be eligible for a loan transfer.
2. Renegotiate with your existing lender
Before opting for a loan transfer for a reduced interest rate, you must consider renegotiating with your existing lender. If you have served your loan with regular EMI payments, then your lender might be open to reducing your interest rate. In addition to this, if you have received a promotion or you have changed your job recently then you must update your lender about the same.
A higher income means better repayment capability and your current lender may reduce the interest rate you are serving. This will help you save the fees associated with loan transfers and aid in building a strong relationship with your current lender.
3. Consider preclosing your loan
You can close the loan by paying the entire balance before the loan’s term. However, most lenders have a fixed tenure that you must serve before opting for preclosure. In most cases, it is 12 months, but you can talk to your lender about this tenure.
Foreclosing a loan early on can significantly reduce your interest costs. Pre-closing your loan can significantly reduce your overall interestpayout. However, there is a cost associated with prepayments if your interest is fixed interest. In this case, prepayment is ideal during the start of your loan and it may not have a significant effect if you are nearing your tenure end.
4. You may go for Part Payment
Part payments on personal loans are made when you have a lump sum of spare money, but not enough to cover the entire loan’s outstanding balance. Part payments are effective because they reduce the outstanding principal, which lowers your EMIs and lowers your overall interest costs.
It’s crucial to keep in mind, though, that this only helps if you receive a sizable lump sum as part payment.Because the part-payment amount is directly deducted from theprincipal outstanding as of the date of making the partial payment. This is a simple but efficient way to reduce your interest amount.
5. Step Down EMI Plan
A Step-Down EMI Plan is another option that many financial institutions and non-banking financing providers offer to their customers. In accordance with this plan, the borrower who accepts a loan must pay a higher EMI at the beginning of the repayment period. The principal amount steadily reduces after each monthly payment, which causes the EMI amount to gradually drop over time.
In the latter stages of the loan term, this strategy may lessen the burden of interest payments. Because it is based on the customer’s cash flow requirements, this type of Flexi-EMI programme is best suited for those who are getting closer to retirement.
6. Update your Salary and Employment Information
During the first few months of your loan’s term, you pay more in interest and less in principal. Update any changes to your salary or income to your banker. For instance, you may utilise a raise, bonus, or income increase to make a prepayment.
By doing this, both the principal and interest will be decreased. Also, if you have changed your employment and got a better job with a higher salary inform your lender and renegotiate the terms of loan interest. There are chances that the lender may agree to it.
7. Improve credit score
Your ability to obtain a personal loan greatly depends on your credit score. Most lenders check for your credit score for approving your loan application and determining your interest rate.
In case, you had a poor credit score while applying for a personal loan, you are likely to get the loan at a higher interest rate. However, you can work towards improving your credit score over a course of 3 or 6 months. Making regular payments on your loan and reducing your total loan burden can help improve your credit score. If a significant change is reflected in your credit score then report it to your lender and renegotiate your interest rate.
Personal loans have higher interest rates than secured loans since they do not seek collateral. However, by reducing the risk associated with your borrowing profile, you may avail an instant cash loan at a much lower interest rate. You can reduce this risk by improving your credit score, increasing your salary, or adding a co-borrower.
If you are already serving EMIs on a personal loan, then you must maintain constant communication with your lender to develop a good relationship and leverage any offers. In case you are not satisfied with the services of your existing lender, then opting for a loan transfer can be your best bet. Download the best loan app to stay updated on the latest loan offers.