How to reduce the interest rate of the loan?
How will you reduce your loan interest? See, sometimes in times of need, we take loans at a high rate of interest. Some customers keep taking back-to-back loans to run their business, and the interest rate is also very high. Because of that, later on, whatever profit the business earns, a large portion of it goes only towards paying loan interest. In such a situation, how can you reduce your loan interest? I will explain that.
Effective ways to reduce loan interest
1. Debt consolidation is one of the best ways
You can take a mortgage loan. I also run a civil activation agency and along with that, I have been running a loan agency for many years — more than 15 years. We always do this work. Many customers already have business loans or personal loans where the interest rate is very high. Just last month, we arranged a loan for a customer who had five different business loans, all at very high interest rates. He had taken loans from HDB Finance, SMFG, and also had a loan from Indus Bank. Loans like HDB and SMFG had very high interest rates — around 26%, 27%, 28%.
We helped him take a loan by mortgaging his property. There, his interest rate came down to 14%, and with that amount, we closed all his previous loans. Along with that, he also received additional funds. Now he got the benefit that earlier he was paying 26%–28% interest, and now he is paying almost half, around 14%. If we look at it, even 14% is quite high for a mortgage loan, but the customer’s profile was such that we arranged it through a non-banking finance company. If he had gotten a mortgage loan from a good bank, then it could have been around 10% to 11%.
So, whether it is a personal loan or a high-interest business loan, you can transfer it by taking a mortgage loan. This can significantly reduce your interest burden.
2. Switching from Fixed to Floating Rates
If your loan has a fixed rate of interest, then generally the interest rate is higher. But you can convert your loan from a fixed rate to a floating rate in the bank. In that case, your interest rate may decrease. However, one important thing to keep in mind is that when you switch from a fixed rate to a floating rate, the repo rate in the market should also be decreasing. Only then will you benefit. When the repo rate decreases, the floating interest rates also go down accordingly. But the opposite can also happen. If the repo rate increases, then your interest rate will also increase. So, you should always consider this calculation.
Now, if you look at 2025, the RBI cut the repo rate by a total of 1.25%, which means a 125 basis points reduction. If your loan was on a floating interest rate and linked with the repo-linked lending rate, then your interest rate could have reduced significantly.
If your credit profile has improved
Now suppose that when you took the loan, your CIBIL score was low. Because of that, you had to take a loan from a non-banking finance company, or even from a bank where you were charged a higher interest rate due to your low credit score. Now if your credit score has improved, you can approach the same bank to request a reduction in your interest rate. However, this is not always easy. In such cases, you can do one more thing — transfer your loan to another bank (balance transfer).
For example, when you initially took the loan, your low credit score resulted in a high interest rate. At that time, some banks might not even have approved your loan. But now, since your score has improved, you become eligible for loans from better banks, and they can offer you a lower interest rate. I will share one of my experiences here. More than 10 years ago, I helped a customer get a housing loan. His CIBIL score was very poor, and no bank was willing to give him a loan. At that time, I arranged his housing loan through a housing finance company at an interest rate of 15%, which was quite high.
After one year, his credit score improved. Then, I transferred his housing loan to another NBFC. Within just one year, his interest rate reduced to 10%. Now you can imagine how much interest he saved, and his EMI also reduced significantly. So, if your case is similar, you can also do this.
Add a creditworthy co-applicant
If you are applying for a loan and your CIBIL score is not good, or your income is not sufficient, or you work in a company that banks consider risky, then you can add a family member as a co-applicant or guarantor. If that person has a good credit score and stable income, you may get the loan at a lower interest rate. You have already taken a loan and later receive some additional funds, you can make a prepayment or even close the loan completely. This will help you save interest.
You can also make partial payments. Even partial prepayment reduces your interest burden. In such cases, you have two options: either reduce your EMI or reduce the loan tenure. In both cases, you save on interest. If the tenure is reduced, you pay for fewer months, which means more savings on total interest.
If you need any loan-related advice, you can contact us on our helpline number. We work as a loan agency and provide loan arrangement services across major cities in India. You will also find our WhatsApp number below. You can message us there, and our team will get in touch with you.