While applying for a personal loan, the interest rate is one of the most important factors to consider as it determines how much of your monthly payment will go toward interest besides the principal balance. So, if you are faced with rising personal loan interest rates, it is natural to be concerned about their effect on your finances.
Not only could higher rates mean a larger portion of your income going towards loan payments, but the additional burden also tends to become unmanageable. However, there are some smart ways to manage your increasing interest rates and overcome any sudden financial strain without sacrificing the security that a personal loan provides. Here are four of the most important ones.
- Compare rates to find the most competitive deal
Before you click the personal loan apply button, it is important to research and compare different lenders. Getting quotes from multiple providers can give you a much better idea of the current market rates and help you find the best personal loan interest rate available.
While researching, also consider any fees or other costs associated with taking out a loan, as they will affect your total cost in the long term. Doing this basic research can help you better manage rising interest rates and be more confident when signing up for a loan.
- Don’t extend your loan term
If you are being offered a high personal loan rate, resist the urge to extend your loan term to reduce your Equated Monthly Instalment (EMI) amount. Extending the repayment period may give you some temporary relief; however, it will cost you more in total interest in the long run.
Therefore, if possible, it is better to make extra payments towards the principal each month while keeping the same term length to reduce your overall loan balance faster and save on future interest payments.
- Go for fixed-interest rate options
Generally, lenders offer personal loans on both a fixed rate basis and a floating rate basis. But when it comes to managing rising interest rates, consider opting for fixed-rate loans. Fixed-rate loans offer the added benefit of knowing exactly how much money needs to be paid back each month without worrying about fluctuations that could cause unexpected increases in monthly payments.
While fixed-rate options may have slightly higher upfront costs, they provide more stability and peace of mind over time than other options do.
- Personal loan balance transfer
If you already have a personal loan but want to reduce the interest rate, then consider transferring your balance from one lender to another. The process can help lower your interest rate if you can get a better deal elsewhere. You can even use a personal loan EMI calculator to compare lenders and find one with better rates and terms for your specific needs.
When transferring balances, make sure to check the lender’s personal loan eligibility requirements as well as any additional fees or charges associated with the transfer process. It is important to compare the total cost of refinancing against the amount saved in interest payments over time to make sure it makes financial sense for you.
Closing thoughts
Personal loans have become an essential part of most people’s financial lives but with rising interest rates, they can become hard to manage. However, with an organised plan, effective budgeting strategies, and an understanding of the loan market, you can manage rising personal loan interest rates and limit their impact on your finances.
