The most popular kind of loan in existence right now is a personal loan. It’s simple to obtain one. After applying for one, you might receive one shortly after. In a sudden need, it is the perfect source of money. This merits the top spot among the many funding choices when combined with less documentation and flexibility of purpose. You should be aware of one issue, though, before applying for one. In general, personal loan interest rates are relatively high. You might be able to get one with a cheaper interest rate. However, not everyone finds that appealing.
Guide to Personal Loans with Low Interest
The following are a few crucial factors to take into account in order to obtain a personal loan with a low interest rate:
- Obtain and keep a credit score of 750 or above.
- Look for offers of pre-approved, immediate personal loans from banks and NBFCs.
- Consult the banks or NBFCs with which you already have loan and/or savings accounts.
- Keep note of the interest rate reductions that lenders give over the holiday season.
- Check and compare personal loan offers from numerous lenders by going to online financial markets.
Personal Loan Interest Rate Influences
Interest rates are generally set by lenders based on their cost of funds and assessments of the applicants’ credit risk. The following are some of the major variables that might affect the interest rates on your personal loans:
Credit Score
Many lenders now take borrowers’ credit scores into account when determining interest rates. Personal loans with lower interest rates are made available to those with better credit ratings than others. As a result, work to keep your credit score at or above 750. You may maintain higher credit scores by practicing good financial habits like paying off credit card bills and EMIs by the due dates and refraining from applying for several loans or credit cards at once.
Existing Lending or Banking connection with the Lender
For borrowers who already do their banking or lending with the lender, several lenders provide personal loans at reduced interest rates. Therefore, consumers looking for personal loan offers should always get in touch with the banks or NBFCs with whom they already have a lending or banking connection.
Income
A larger income suggests a greater ability to pay back the loan. As a result, the lender has less credit risk. As a result, many lenders give reduced personal loan interest rates to borrowers who earn more money.
Employer
Many lenders base their interest rates in part on the applicant’s employer information. Due to the increased income certainty of salaried workers compared to self-employed individuals, interest rates are often cheaper for the former. Due to their greater job stability and predictable income, government and PSU employees typically receive lower borrowing rates than other salaried candidates. The next group of applicants for personal loans are those who work for MNCs and other well-known private sector companies since it is generally believed that these businesses have a better chance of surviving economic downturns than other private sector businesses.
How to obtain a Personal Loan at a Low Interest Rate?
Before your Personal Loan is granted, lending institutions look for various factors like the loan amount you need, your employment history, credit score, repayment capacity and more. Interest rates for such loans tend to be higher than those applied on Home and Auto Loans.
So, getting a Personal Loan with minimum interest rates becomes crucial. But how does one obtain it? Here are six ways to answer that.
1. It’s crucial to have a High Credit Score
You must make on-time payments on all of your bills and obligations if you want to have a high credit score. Your chances of getting a personal loan rise dramatically if your credit score is 750 or above.
All you need to do is keep your credit utilization rate low (about 30%), avoid taking out credit cards and direct loans, watch your credit report, and maintain a healthy balance of unsecured and secured loans.
Ensure prompt repayment of your co-signed loan account as well, since missing or late payments may impact both your credit score and the principal borrower’s.
2. Consider your Employment history
You’ll want a solid credit score to be eligible for a personal loan with the lowest interest rate feasible. You must keep a great FOIR (Fixed Obligation to Income Ratio) and stable employment in order to retain a high credit score. The financial establishment requests a few Personal Loan paperwork before approving the loan. Your pay stub, which summarizes your job history, is one such crucial document.
A minimum of two years of work experience is required, with at least one of those years spent with the present company. People who work for the federal, state, local, quasi-government, or PSUs are preferred borrowers for personal loans by banks. The interest rate on your personal loan is significantly influenced by your credit standing and employment history.
3. Credibility of Employer
The likelihood is that you’ll receive the most advantageous Personal Loan offers if you’re already employed by an MNC or other reputable business. The answer is straightforward: such an employer is more likely than other employers to be able to give you a secure work. Working for such a firm would offer your lender the idea that you have a reliable source of income and can make your EMI payments on time.
4. Maintain a clean and Good Record Of Repayment History
If you have any Credit Card bills, try to pay them in full. Clear off your debts every month. If you have any other existing loan, make sure you pay the EMIs on time.
This will get you the best Personal Loan deal in future, as your lenders will trust and rely on you because of your good repayment history. It will also help you negotiate the interest rates with the lender.
5. Compare Personal Loan interest rates and watch out for seasonal offers
Depending on your personal loan eligibility and requirement, explore online financial marketplaces where you can compare various lending institutions and their rate of interest on Personal Loans. Moreover, pay attention to your existing lender.
They mainly offer Personal Loans at comparatively lower interest rates and helpful service as you have been on good terms with them. Also, watch out for interest rates during festive seasons, as popular banks like ICICI often launch attractive seasonal offers for Personal Loans. The best time to get such offers is during Diwali.