Personal loans are a suitable funding option in case of an emergency since they can be availed of quickly and with minimum eligibility. Moreover, they are available as an unsecured credit, which means that borrowers do not need to provide any asset as collateral to avail this loan.
Nevertheless, interest rates on personal loans can be a differentiator as to whether a borrower opts for the advance or not. Also, with multiple factors affecting interest rates, a person with the right eligibility stands to negotiate with the lender for affordable rates.
Hence, borrowers can go through the below pointers to know how to avail the best personal loan interest rate.
Ways to avail of a personal loan at attractive rates
- Check CIBIL Score –
CIBIL score is one of the most critical parameters that lenders consider before approving a personal loan. It is a numerical representation of one’s credit history. Lenders thus refer to this score to assess borrowers’ creditworthiness.
Accordingly, a high credit score of 750 or above suggests responsible credit behaviour and the borrower is considered to be of low-risk by lending institutions. Applicants with a high credit score, therefore, stand better chances of availing competitive personal loans interest rates.
Their loan application also stands a chance of quick approval by financial institutions. Moreover, it also creates a scope for them to negotiate with their lender for a higher loan amount.
On the other hand, lending institutions charge a significant interest rate from borrowers with a poor CIBIL score. Hence, they should adopt the following measures to improve their credit score –
- Strictly regulate their credit utilisation ratio to 30-40% of the total credit limit.
- Pay off the maximum of their existing debts.
- Avoid applying for multiple credit cards or loans at the same time.
- Maintain a healthy balance between secured and unsecured credit options.
- Leverage your employment credentials –
Borrowers with a stable source of income who are permanently employed at a reputed firm or organisation – public or private, are considered eligible for timely loan repayment. Hence, they stand better chances of availing personal loans with favourable interest rates. Self-employed individuals with a steady source of income, such as doctors, chartered accounts, etc. can also avail low-interest personal loans conveniently.
- Create a positive repayment history –
Apart from the CIBIL score for a personal loan, lending institutions will also take into account your repayment history, which is a record of previous or existing loans or credit card payments. Timely payment of loan EMI and credit card bill will result in a positive repayment history creation.
In contrast, defaults and late payments will lead to a negative or poor repayment history, which in turn, can hurt your credit score, thus hampering your chances to avail a personal loan at competitive rates. Hence, you must maintain a positive repayment history to avail personal loan at low interest.
- Look for seasonal offers –
During certain times of the year, such as the festive seasons, lenders provide competitive personal loan interest rates and other attractive schemes. You will be able to save a substantial amount on interest repayment if you take advantage of such seasonal offers. However, you should check other fees applicable to your loan before applying.
Furthermore, some lending institutions such as Bajaj Finserv also provide pre-approved offers on personal loans to facilitate hassle-free loan processing. Besides personal loans, such offers can also be availed on other unsecured credits such as business loans, credit cards, etc. You can check your pre-approved offer by entering only essential details like your name and contact information.
Borrowers should also keep in mind that there are various methods of interest calculation used by different lending institutions, which can affect the total interest payment even though the personal loan interest rate specified by the lender is low.
For instance, some lending institutions use the flat interest rate, whereby interest is calculated on the total loan amount throughout a tenor. Some lenders employ the reducing interest rate method, where the interest is calculated on the outstanding loan amount. Hence, in the former approach, the interest amount is constant, whereas, in the latter, it reduces over time.
Apart from knowing how to avail the best interest rates, applicants should also know about the eligibility criteria. Plus, arranging for all important documents required while applying for a personal loan helps streamline loan processing.