Are you looking to apply for a loan? The first thing you need to do is to compare the best interest rates around. But, are the interest rates of banks and other financial institutions fixed? Can’t you do anything to get the interest rate down? Yes, you can. There are various ways in which you can get a better deal for the interest rate on your car loan, home loan, education loan, personal loan, etc.
Let us see 5 ways in which you can get better interest rates on loans.
1) Shop Around
Lot of times we just prefer the banks we know in case of a loan. Some of us feel that these banks offer better service and others just go for it because of the brand image. However, all banks are under the purview of RBI and are well regulated.
Before you jump to a conclusion on which bank to choose, take time to shop around for the interest rates. A bank which had offered the best rate 6 months ago may not be the best now. When RBI tinkers with interest rates, not all banks pass on the benefits to the customers. You can opt for a bank which passes on these benefits on a consistent basis to its customers. Online portals like Bankbazaar.com offer great deals on the best interest rates, which you can choose from. Always calculate the loan EMI amount and then check for the amount of benefit from the loan interest rates offered. A difference of 0.25-0.5% may not make much of a difference.
(Also see: Various SBI home loan schemes)
2) Wait for rates to come down
If the rates are higher now, you can look to wait before applying for a loan. However, do this only if you are willing to wait for a few months from here. RBI may increase or decrease rates in its monetary policy based on several factors such as inflation, growth and so on. Moreover, this is slightly risky as we discussed above that banks may or may not pass on the benefits to the customers even when RBI reduces rates.
3) Improve your credit score
Credit score is another factor which affects your loan rate. Typically, banks look out for a credit score of about 750+ to sanction loan. However, your negotiating power increases if this score is more. Having a better credit score makes the bank feel that you pay EMI’s on time and there are lesser chances of you defaulting on the loan taken. Hence, always look to optimize your credit score. Paying bills or EMI’s on time, not being credit hungry, maintaining healthy mix of credit are some of the ways to improve your credit score.
(Also see: Transfer your home loan for a better deal)
4) Fixed or Floating?
The bank would give your two options for choosing the type of interest rate – fixed and floating. You need to choose one of them. The first one makes the interest rate fixed for the entire term (specified) and in the second option the interest rate fluctuates. Which one will benefit you? I would say it depends on the current interest rate scenario. If the interest rates are high now, there is no point in choosing a fixed option. You can either wait or go for a floating option. However, if the interest rates are low, do not hesitate in choosing the fixed rate option.
It’s always easier said than done, though. It would be difficult to know if this is a high interest rate scenario or low interest rate scenario. You would have to observe the interest rates for the past 6 months – 1 year to be able to judge that.
5) Prefer pre-approved loans
You might have received mails or calls regarding pre-approved loans. Do not ignore them. Banks generally pre-approve loans for customers with good credit history or track record in paying loans, good income level, etc. The interest rate offered is generally 1-2% lower than the existing one as there is lesser risk faced by the bank. It may not be the same in all cases. You need to cross check other conditions as you do for normal loans.
So, the interest rates given by the bank are not fixed. There are various ways to get better interest rates on loans. But, you should be ready to negotiate with the bank to the extent you can. If you do not negotiate, the rates will not go down automatically.