The personal loan interest rate varies from 10.50 to 24 per cent per annum in India. The rates differ from one lender to another lender. The interest rates keep changing as banks and NBFCs offer various discounts from time to time.
Interest rates are the primary element of a personal loan. It affects loan amount, EMI, and repayment conditions. Factors that affect personal loan interest rates are credit score, income stability, responsible borrower, debt to income ratio, work experience and employer profile.
Most lenders apply a risk-based pricing model to process the personal loan application and decide the interest rate to be charged on the loan amount.
Here are some strategies to increase your chances to get affordable interest rates on personal loans. Let’s go through the tips in the following paragraphs.
Tips for Affordable Personal Loan Interest Rates
Compare Loan offers
There are several comparison websites available online. They provide updated information on interest rates, processing charges, and EMI. If you open a particular tab of a lender, you can also see specific personal details.
Do soft enquiries that will not affect your credit score. If you have a good credit score above 750, you might be eligible for pre-approved loans, but do not settle for the first offer your get. Shop around the search for the best personal loan offer with a lower interest rate and higher eligible loan amount.
You can add a co-signor to reduce interest rates and increase the eligible loan amount. A co-borrower with a good credit score and stable income can be a great support in getting lucrative loan offers.
A co-applicant is a guarantor and equally responsible for the loan. They are liable to complete repayment as per scheduled timelines and the primary loan applicant.
Another advantage of adding your high-earning partner on the personal loan application is you save on monthly expenses and liability gets shared between two people.
Some of the leading lenders allow discounts and offers for activating the auto-debit option. Autopay helps lenders to track and maintain repayments as scheduled in the personal loan agreement. For borrowers, they do not have to remember dates and never miss an EMI payment.
So, autopay is a good option to not be on time with your loan payments and chances to get slashed interest rates.
Avoid Charges on Personal Loan
Processing fees and other charges increase the cost of a personal loan. Browse on the web and find a charge-free loan offer. Normally, banks and NBFCs offer zero charges during the festive season or pandemic times like we have experienced during Covid-19.
RBI and Government encouraged banks to slash interest rates and charges to deliver benefits to the borrowers under financial stress due to unemployment, job loss, business loss, etc.
During festival season around Diwali, lenders offer zero processing fees and lower interest rates to boost sales of financial products. The offers remain for a limited time period and vary from one lender to another.
Keep a track of these events through online news, updates on the smartphone, and get discounts on interest rates and processing charges for affordable personal loans.
Shorter Repayment Tenure
Short personal loan tenure is better than long term for saving money on the interest rate. In the long-term, interest rates accumulate, and you actually end up paying much more than the principal amount. In the short term, the interest amount remains low, though EMI might feel a little higher.
If you have a stable job or business with enough disposable income, go for larger EMIs and shorter loan tenure. It will save a lot on interest payments, and you will clear your debts quickly.
Improve Your Credit Score
Credit score affects your eligibility for lower interest rates, and attractive personal loan offers significantly. It is essential to plan for improvement in credit score to get an affordable personal loan. But the process takes time, and you need to make efforts months before applying for the loan to get desired outcomes.
The first step is checking your credit score from a reliable online platform. If the score is 750 or above, there are higher chances of loan approval. Lenders provide affordable interest rates and higher loan amounts.
On the other hand, if the credit score goes southwards below 700, borrowers need to improve the CIBIL score. A credit score is a comprehensive analysis of existing debts, loans, and complete financial history. Lenders assess your repayment capacity based on the personal and financial mapping.
Maintain Healthy Debt to Income Ratio
The debt-to-income ratio is the amount payable out of your monthly income for loans and debts. A standard percentage is 40 per cent, maintained by most of the lenders. Keep your liabilities under the standard ratio to get attractive personal loan interest rates.
Banks and NBFCs assess your income and repayment capacity based on your existing financial commitments in a month. Lenders divide monthly gross income from a job or business with the monthly debt amount.
Leverage Employment Status
If you draw a high salary and employed with a reputable organisation such as PSU, Government Bodies, Indian MNCs, International Corporations, etc., your chances of getting lower interest rates are better than smaller private firms.
Banks and NBFCs employ all the measures to assess your repayment capacity and eligibility to lend capital support. To do so, they also check your background including work experience and current employer.
People working in these organisations have better repayment capacity. Whereas people employed in small unlisted companies with unclear company backgrounds are less likely to get discounts on interest rates.
Personal loans are the perfect option to fund immediate financial requirements and emergencies. You can get relief on higher interest rates and less or nil processing charges with these tips. Every discount on the interest rate decreases the EMI amount and eventually the total loan amount. Another important tip is a personal relationship with the lender. If you are good with people skills, you might get further benefits on a personal loan.
Refer to the passage, compare and apply for the best personal loan with affordable interest rates.