Interest rate is one of the most important factors to consider as a borrower when taking out a personal loan. Because personal loans are an unsecured form of financing, you may find that the interest rates are on the higher side. There are several factors to consider when looking for the lowest interest rate personal loan. Banks also provide personal loans for salaried employees, which can assist individuals in meeting the costs of any medical emergency, vacation, wedding, or educational plans.
What are the four factors influencing interest rates?
1. Credit score: A high credit score indicates that you have made on-time payments in the past. As a result, a credit score is frequently one of the primary factors influencing an individual’s interest rate. If you have a low credit score, you may be eligible for a loan with a higher interest rate than someone with a good credit score.
2. Income: Lenders frequently believe that a person with a higher income has a better repayment capacity. As a result, they may be able to obtain a loan with a lower interest rate than someone with a lower income.
3. Relationship with the bank: Having a good relationship with the bank (current or savings account) or an on-time loan repayment history can help an individual get the lowest interest rate personal loan.
4. Employer reputation: Working for a reputable organization and having a stable job can help an individual obtain a personal loan with a lower interest rate since it demonstrates that you will be able to repay the loan on time due to a consistent inflow of cash.
There are, however, methods for obtaining a lower interest rate on your personal loan.
Usually, the interest rate on a personal loan starts at 13 percent per annum. However, the actual interest rate offered to an applicant is determined by a variety of factors such as their credit score, loan amount, age, occupation, employer, repayment history, and so on.
1. Keep a good credit score
A high credit score reflects your responsible loan repayment behavior. It gives your lender confidence in your ability to repay your loan. As a result, you have a better chance of negotiating an interest rate with your lender.
Keep an eye on your credit report for any suspicious activity. Lenders and financial institutions, in general, prefer credit scores above 750.
2. Maintain a good loan repayment track record
A good repayment history means paying all debts on time. It raises your CIBIL score and increases lender trust and worthiness. Because bad loans jeopardize lenders’ financial stability, they avoid lending to those with a poor repayment track record.
3. Evaluate various lenders
Comparing offers from various lenders is an important financial exercise. Previously, banks were the go-to institutions for personal loans; however, the rise of non-banking finance companies (NBFCs) has altered the lending landscape. Personal loans are available from NBFCs, which may offer different terms and services than traditional banks. However, it is critical to compare offers from various lenders to get the best possible deal for yourself.
4. Keep an eye out for special offers.
Lenders frequently make special personal loans offers, especially during the holiday season. Though these offers are only available for a limited time, they provide an excellent opportunity to obtain a personal loan on favorable terms. You can sign up for updates on such offers and take advantage of the opportunity when it arises.
5. Read and understand the small print
Reading and comprehending the fine print is one of the most important aspects of personal borrowing. Thoroughly examining the legal document will help you avoid unpleasant surprises, such as an upfront processing fee, prepayment, foreclosure charges, etc.
Personal loan interest rates influence monthly EMIs. Getting the lowest interest rate personal loan will reduce your EMIs and keep your expenses and other financial goals on track.
Also check – A Step-By-Step Guide To Apply For A Top-Up Personal Loan