Interest rates for personal loans can range between 14% and 36% per year. Lenders offer such credit at different rates based on an applicant’s eligibility. Even when such loans are available at various rates, consumption among Indians is still growing.
- The personal loan category experienced a 12.1% growth y-o-y in September 2021.
Therefore, if one considers applying for such a credit advance, knowing all about personal loan interest rates is integral.
Steps To Avail Low-Interest Rate Personal Loan
Individuals planning to get online personal loans should keep the following factors in mind in order to get low-interest rates:
Improve CIBIL score
Before sanctioning unsecured loans, lending institutions check the loan applicant’s repayment track record. Individuals having a credit score of 750 or above are considered low-risk borrowers. This means that they have paid all their existing dues diligently. Those applicants inevitably get better terms and moderate interest rates on such a loan variant.
Even though one can still get a personal loan with a poor credit score, he/she has to bear higher interest rates in that case. Therefore, to keep EMIs affordable, it is rather better to improve the CIBIL score before submitting a personal loan application.
Include all income sources
One of the key eligibility criteria for personal loans is income details. Those with limited monthly income find it too difficult to get approval on such loans. On the other hand, individuals working for a reputed organization and drawing a high salary automatically get affordable personal loan rates.
Therefore, individuals with additional income sources must make sure to mention them in their loan applications. After assessing all of that and an applicant’s repayment capacity, lending institutions will offer the loan amount and interest rate.
Compare multiple lenders
This particular credit facility has no end-use restrictions feature, which enables borrowers to utilize the acquired sum to meet any financial requirement. On top of such facilities, some financiers extend additional offers as well. Reputed NBFCs such as Bajaj Finserv provide pre-approved offers on several financial products, including personal loans, business loans, credit cards, etc. You can check your pre-approved offer by submitting your name and contact details.
Customers must compare multiple lenders to bag the best deal and find the lowest interest rate on personal loans. Access to funds up to Rs. 25 lakh, prompt approval, etc., are some of the reasons why Bajaj Finserv is one of the most preferred personal loan lenders in India.
Also check about – Important Personal Finance Tips
Keep an eye on the repo rate
The Reserve Bank of India regulates inflation through a specific method known as the repo rate. It is the interest rate that the RBI charges while lending money to commercial financial institutions. Therefore, any rise or fall in the repo rate will similarly affect personal loan rates. Therefore, keeping track of this repo rate allows borrowers to optimize their personal loan interest outgoes.
Understand the link between tenor and interest rates
Lenders assess the risk of loan delinquency based on the repayment tenor that a borrower chooses. Choosing a shorter repayment tenor may help a borrower get rid of their financial liabilities quickly, increasing interest rates. On the other hand, a longer tenor will keep the personal loan rates contained.
However, keep in mind that increasing the tenor will ultimately lead to increased interest costs for the loan. One can use an EMI calculator to check the EMI breakup of their personal loans to follow a balanced approach.
Manage your debt-to-income ratio
Before sanctioning a line of credit, lenders check another factor that affects your personal loan interest rate. If an applicant has existing loans or dues, the same will reflect poorly on his personal loan application. The best approach in such a case is to clear present debts and keep the debt-to-income ratio under 40%.
For instance, if an individual earns Rs. 50,000 per month, his debt should be under Rs.20,000 monthly. NBFCs may approve his personal loan application by charging higher rates if it exceeds this limit.
Apart from these factors, the internal policies of a lender also affect personal loan interest rates. Since these factors are not in one’s control, the best way to ensure favorable terms on such a loan is to improve eligibility. Nevertheless, a borrower must keep other aspects of a personal loan in mind when choosing a lender, such as processing fees, tenor flexibility, and more.