Compare rates across lenders and use this to negotiate with your bank
Getting the best deal on personal loan can be daunting. Being unsecured loans, there is a range of interest rates and terms offered by banks, making it difficult to zero in on the best option.
Here are five ideas that can help you land a good deal.
The interest rate on a personal loan is based on a bank’s base rate and a spread. These vary among banks and change over time for the same bank.
So, rather than limit your search to only banks with which you have an existing relationship, know what other banks offer. One quick way to do this is to compare rates on websites such as BankBazaar.com, Bestdealfinance.com and Rupeezone.in.
You can also talk to agents who are authorised by banks to syndicate loans.
In addition to interest rates and tenure, find out other costs such as processing fee, closing costs and prepayment charges. This due diligence helps in getting a good deal.
For instance, if the terms offered by the bank where you have an existing account are not the best, it may be worth your while to get quotes from competing banks and then use these to negotiate.
Close existing loans
A factor that can impact rates is your existing loan obligations. This is because banks evaluate your ability to service a loan based on your income after subtracting EMI payments.
Closing your existing loans, if possible, can qualify you for a higher loan amount. It can also improve your credit score and get you better rates. Banks may also offer better terms if you transfer a personal or other loan from another bank to them.
However, you must also look at the full cost — prepayment penalty, closing costs and higher overall interest payments due to your loan payment schedule getting reset.
Banks perceive personal loans as risky as they are not backed by any collateral.
So they want to ensure that you are both capable and willing to service the loan. It helps to establish that you have a good history of repayments.
Besides, you will be judged as a high-risk borrower if you just moved to a city or took up a job. The risks are considered higher if this is your first job, says V Muralidharan, designated SBI authorised loan counsellor.
If you have a salary account, a long transaction history and good income potential — judged by your education and length of employment — you are likely to be considered a low-risk customer. Banks may be willing to reduce processing fees or increase loan eligibility based on your account history.
Look for offers
You can also take advantage of special offers that banks come up with from time to time. For example, during festive season, there may be promotion schemes linked to products, such as white goods or consumer durables, says Manavjeet Singh, Managing Director, Bestdealfinance.com.
There may also be bulk deal offers to government employees or those working with well-known companies. For instance, if you are employed by a top-tier company, your company’s preferred banking partner may offer personal loans with a lower processing fee, says Adhil Shetty, CEO of BankBazaar.com.
You may sometimes find that the best deal from a bank is for a lower amount than what you actually need.
Split the loan
In this case, rather than pass up the offer, you can consider splitting your loan between two banks. You can ask for waiver of prepayment/pre-closure charges with the bank offering higher rate so that you can pay it off, if possible, before the tenure to reduce interest costs.
However, taking two loans involves more overall cost due to processing cost. So, be sure to weigh this aspect also when deciding on splitting the loan.