Any big-ticket purchase requires the needed amount of money in hand, otherwise a financing option. One of the easily accessible financing options is a personal loan.
It can be a personal loan for salaried employees or a self-employed personal loan. Personal loans continue to lead over others in FY23. In January 2023, the unsecured personal loan share was 31.3% in the personal loan segment – an increase of 140 basis points (bps) from the previous years. Paperless loan applications, quick approval, fast disbursal, easy documentation, high loan amount, and other benefits make personal loans the preferred options for most individuals.
Loan terms offered to a customer vary from another based on various factors. Know these crucial factors and some tips in this article to get the best deal on a personal loan.
How to Get the Best Deal on a Personal Loan
Here are some key aspects that can help customers to get a personal loan with the best terms:
- Maintain a High Credit Score
A credit score is assigned by a credit bureau based on an individual’s credit behaviour in the past. It indicates an individual’s creditworthiness and therefore, is important for lenders. To maintain a high credit score (750+), individuals need to know its components. The components of a credit score are payment history (35%), credit utilisation ratio (30%), length of credit history (15%), credit mix (10%) and new credit (10%). Thus, to maintain a high credit score, customers should:
- pay their bills on time
- keep the credit utilisation rate below 30%
- make your credit history longer by holding your old credit cards and buying some items on credit
- have a credit mix, such as credit cards, loans, and mortgages.
- open new but limited credit card accounts as many inquiries for credit impact the credit score negatively.
- Prefer a Shorter Term Loan
Personal loan repayment tenure can be chosen between 12-60 months.
- Short-term loans demonstrate that the borrower is a financially responsible person. Simply because when an individual takes out a short-term loan, they understand that they need to commit to repayment within a few months. Getting impressed with such financially responsible behaviour, lenders can offer a personal loan at favourable terms.
- Also, longer-term loans attract higher lending rates comparatively because it increases the risk for lenders.
- In the context of interest cost, the overall interest cost on long-term loans is higher than on short-term loans.
- Remain Attentive to Seasonal Offers
For more consumer acquisition, most lending institutions keep informing customers about special or festive offers on loans.
Generally, lenders offer these loans with lower interest rates. However, these offers have limited validity. Therefore, customers should be attentive to their inboxes to grab such opportunities
- Check the Possibility of Negotiation
Borrowers can consider negotiating with the lender regarding loan terms.
- Generally, a salaried employee can get a personal loan at a lower interest rate as compared to a self-employed person. Unlike self-employed personal loans, lenders may negotiate on loan terms in the case of a personal loan for a salaried individual.
- Individuals with a credit score and a sound financial background can benefit from negotiation with the lender.
- Consider a Cosigner
Applying for a loan with a cosigner means the cosigner is ready to take the responsibility for your loan repayment. If the co-signer’s credit score is high with a spotless credit history, and he/she has a high and stable income, the lender may consider approving a loan at favourable terms.
- Look for Pre-approved Loans
If an individual has established a sound relationship with the existing lenders, it boosts the chances of securing personal loans with favourable terms.
- Mention Additional Income, if Any
As a responsible lender, we need to ensure that the loan applicant has an income source to repay the loan, customers can mention an additional source of income for favourable loan terms.
It can be an income from rental income, part-time job, freelancing, investment, or any other income stream. It simply boosts the applicant’s chances of getting a more favourable personal loan, such as a longer repayment period.
- Repayment of Costly Debts First
Multiple financial obligations of an individual leave them with less income in hand and impact their new loan terms.
List existing debts and prioritise them based on interest costs and try to pay off costly debts first. It helps to increase disposable income and positively lower loan costs with reduced interest rates.
Thus, it is crucial to consider that not all loan offers are the same. Getting a personal loan with more favourable terms is possible with a few smart tactics that reduce a bit of the repayment burden.