An exciting prospect in the field of magnetic fluid hyperthermia (MFH) has been the integration of noble rare earth elements (Eu) with biopolymers (chitosan/dextran) that have optimum structures to tune specific effects on magnetic nanoparticles (NPs). However, the heating efficiency of MNPs is primarily influenced by their magnetization, size distribution, magnetic anisotropy, dipolar interaction, amplitude, and frequency of the applied field, the MNPs with high heating efficiency are still challenging. In this study, a comprehensive experimental analysis has been conducted on single-domain magnetic nanoparticles (SDMNPs) for evaluating effective anisotropy, assessing the impact of particle-intrinsic factors and experimental conditions on self-heating efficiency in both noninteracting and interacting systems, with a particular focus on the dipolar interaction effect. The study successfully reconciles conflicting findings on the interaction effects in the agglomeration and less agglomerated arrangements for MFH applications. The results suggest that effective control of dipolar interactions can be achieved by encapsulating Chitosan/Dextran in the synthesized MNPs. The lower dipolar interactions successfully tune the self-heating efficiency and hold promise as potential candidates for MFH applications.