Before you avail a loan of any kind — like a personal loan, an auto loan or a home loan — you need to first compare your options. You may be eligible for loans from different banks and financial institutions, and by comparing your offers, you can find the loan that offers the best interest rates.

 

But in addition to checking out the different loan offers you’re eligible for, there are also many other tried and tested ways to ensure that you get the most competitive loan interest rates in the market. Curious to learn more about all the ways in which you can reduce the cost of borrowing? Here are 5 ways to get the best loan interest rates.

 

1.  Ensure you have a good credit score

Your credit score is a three-digit number that reflects your creditworthiness. It takes into account your repayment history, your credit history and your credit mix, among other things. The higher the credit score, the more likely lenders will be to offer you a good rate of interest on your borrowing.

 

Credit scores can range from 300 to 900, and a good credit is typically 750 or higher. If you can maintain your credit score in this range, you will be eligible for higher loan amounts as well as better interest rates. To ensure that your credit score is high, pay your existing debts on time, limit your credit utilisation to 30% or lower, and have a good mix of credit like loans, credit cards, etc.

 

2.  Choose the right kind of interest

Some loans come with a flat rate of interest, aka fixed interest rates. Others may have a floating rate of interest. In a fixed interest rate loan, the interest is calculated at a predetermined rate throughout the tenure. However, in a loan with a floating rate of interest, the rates change according to fluctuations in the repo rate.

 

A fixed rate may be beneficial if you expect the interest rates to rise in the future, because you can lock in a lower rate. On the other hand, if you expect the interest rates to reduce, a floating rate loan will help you take advantage of the falling interest rates in the economy. Making the right choice between these options will give you the opportunity to optimise your interest rate.

 

3.  Look out for deals and offers

Sometimes, banks and other financial institutions may have some offers or discounts on their loan products. Keep an eye out for these deals, so you can make the most of the reduced rates of interest on the loans offered by the lending institution. However, ensure that you read the terms and conditions of the offer thoroughly before availing it.

 

Some offers may give you a reduced rate of interest for a specific period, and then increase the rates later. The increase may even be above the market average. So, keep an eye out for these scenarios, and work out the overall costs and benefits of any discount you see. Also, if an offer seems too good to be true, it probably is. However, in case of a genuine offer, you can get a good discount on your interest rates.

 

4.  Compare rates from different lenders

There are many banks and lending institutions in the Indian financial market. And the rates of interest for any given loan are not the same across these lenders. With a little bit of research, you’ll find that interest rates vary based on the type of loan, the amount of loan, the tenure and even the income level of the borrower.

 

When you compare the different loan offers available online, you can find the ones that carry a lower rate of interest than others. This helps you choose a loan that is affordable and comes with favourable terms and conditions. You can simply visit any of the many aggregator websites and research the market interest rates to make your decision.

 

5. Choose a lender with whom you have an existing relationship

Lastly, if you already have an existing relationship with your banker or with any other financial institution, you may be able to leverage this and obtain favourable rates of interest on your loan. So, before you borrow money from a new lender, check with your existing banker to see if they offer more competitive rates for you.

 

In case the terms and conditions of the loan are more conducive to your financial situation, you may choose to borrow from your existing banker itself. This will further help foster the banking relationship you have with the lender.

 

Conclusion

These are some of the many ways in which you can effectively reduce the cost of borrowing money. By using one or more of these techniques, you can ensure that the interest payouts don’t get too high, and the money you save in the process can be redirected to other savings or investment accounts.

 

It also helps to keep the interest costs within an affordable range, because that way, you can repay your EMIs promptly, without any delays. And this, in turn, ensures that your credit score remains unaffected.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.