Apply For Personal Loan At Low Interest Rates

If you ever come across a situation where you're in need of some extra funds, arguably the best way to secure those is to apply for a personal loan. It does not require any collateral or security. Creditors lend the amount to you based on your income and credit score, among other things. You can use it for a vacation, pay expenses for a wedding, use it for renovation of your home etc.Because personal loans are unsecured , the interest on these is a little high. In this article we’ll discuss everything there is to know about interest rates of personal loans. Let us begin!

It is in your interest to get the lowest possible interest rate for your personal loan. There are a lot of pointers that you must keep in mind before you sign the fitted line and get a loan. To get lower interest rates for your personal loan, try the following tips:

1. Improve your Credit Score

Your credit score is an important parameter by which your lender will decide how much interest you’ll have to pay. A credit score is a value that is decided as a result of your credit history. So all your past credit card payments, past loans, loan repayments, defaulted loans (If any) are taken into account when calculating your credit score. If you have a good credit score (usually above 750), it means that you’re credit-worthy and the lender will approve your loan with an interest rate that is favourable to you. Similarly, a lower score would result in a higher interest rate.Therefore, to get the best possible interest rate, look to improve your credit score.

2. Avoid Missing Repayments

When you miss your credit repayment, either for a credit card or an existing loan, it affects your credit score. Creditors look at your past repayment history and if it is impeccable, they’ll get you a loan with a low interest rate and vice versa.

3. Look for offers on loans

Banks and NBFCs sometimes have attractive interest rates and offer for a limited time on loans. Watch out for those, especially during festive seasons. Interest rates during such offers are quite favourable and you might get an excellent deal.

4. Compare Interest Rates

It is prudent to compare interest rates from various leaders and choose the lowest one. Interest rates are never fixed and vary from lender to lender. So, compare multiple options and choose the best deal.

5. Negotiate with the lender

Never ever take the first offer of a lender as a final word. Always negotiate for a lower interest rate with your lender, especially if you have a long relationship with your creditor. Submit a formal written request, stating that you’re an existing customer and would appreciate it if a better deal was offered.

1. Credit Score

One of the most important factors that lenders look at when deciding the interest rate for your personal loan is your credit score. A good credit score of above 750 would get you a lower interest rate. On the other hand, if your score is lower, your interest rate could be higher.

2. Income

Your income gives a very good idea of your repayment capacity to the lender. A higher income means that you’ll be able to repay the loan easily and hence that would attract a lower interest. A lower income would put the lender at greater risk and hence the interest is higher.

3. Repayment history

If you have dutifully paid all your credit card bills and EMIs on time in the past, that can get you a better interest rate. Creditors check your repayment history and if it is unfavourable, they can assign a higher interest rate for your loan.

4. Defaults

If you’ve defaulted on a loan in the past, your chances of getting a personal loan are low at the outset. But even if you get a personal loan despite having a low CIBIL score, the interest rates will be much higher.

5. Your relationship with the creditor

Banks and NBFCs take into account your relationship with them when you apply for a loan. If you’re their existing customer and have had a long and healthy relationship with them, you can get them to lower interest rates on your personal loan.

6. Your employer’s reputation

If you’re an employee at a reputed organization, creditors look at you favourably since it is likely that your job will be secure for the foreseeable future. This will allow them to get you a lower interest rate for your personal loan.

A fixed interest rate on your personal loan means that the interest rate will remain the same throughout the entire tenure of your loan. On the other hand, a floating interest rate fluctuates throughout the repayment period, according to the Marginal Cost of Lending Rate (MCLR).The advantage of a fixed interest rate is that you know exactly how much amount you have to repay since that does not change during the tenure. This option is more suitable to borrowers who want to plan their finances carefully and do not like volatility.A floating interest rate is more suitable to those who do not mind fluctuations in the interest rate. The benefit here is that the interest can reduce, and thus the total loan repayment amount will also reduce.

In a fixed interest rate loan, the interest is calculated at the beginning on the total loan amount. However, if you avail your loan at a reducing interest rate , the interest rate is only calculated on the outstanding loan amount. So, if you pay a certain EMIs at an interest rate, the interest is recalculated on the balance loan amount and hence you will pay reduced interest rates as you repay your loan.

When you avail a personal loan at a low interest rate, here are some things you must consider:

1. Processing Fee

Lenders always charge a one-time fee as a processing fee when you apply for a loan. So if you get a loan with a low interest make sure you also check the processing fees and choose a lender who’s charging the lowest fee.

2. Pre-closure charges

If you pay off the loan before the tenure is over, some lenders levy a pre-closure penalty. So enquire about the existence of any prepayment penalty with your lender before you get a loan.

3. Customer Service

Before securing your loan, ensure that your bank or NBFC offers good customer service. A good customer service must be prompt in reaching out to you and getting you assistance on your request.

4. Eligibility Criteria

Before submitting your application, make sure you fit the eligibility criteria for the loan. There’s no point applying for a loan with a lender where you’re not eligible.

5. Loan Disbursal Time

In case you require funds in an emergency, it will be important for you to get the loan in quick time. So always ensure that the loan disbursal time is quick enough when choosing your lender.

6. Other Charges

Not everything depends on the interest rate. Even if your interest is low, other charges like processing fees, default charges, Loan Cancellation Charges, prepayment fee, cheque/EMI bounce charges,, Stamp Duty Charges, Instrument return charges, Duplicate statement issuance charges, swap charges, Duplicate Amortization schedule issuance charges, etc can lead to a higher cost of the loan. So ensure all these charges are also low.

7. Discounts

Banks and NBFCs sometimes offer discounts on loans and you can enquire about these at the time of applying for your loan.

8. Special offers

Limited time festive offers are also given by lenders so make sure your timing is right. You may get an excellent deal if you apply at the right time.

If you wish to calculate your EMI for a personal loan, you can do so very easily using an EMI calculator which is available on almost all bank and NBFC websites. Simply locate the EMI calculator and enter the required details like your loan tenure, total loan amount, interest and processing fee. The calculator will immediately tell you how much EMIyou’ll be required to pay. You can also modify your loan amount or tenure and determine your EMI so that it is within your budget.

The interest rate of your personal loan is very important and you must consider all aspects of it before finalizing your loan. The above guide can not only help you choose the best loan available out there, but also allow you to get a loan with the lowest interest rate. So read carefully and choose your loan wisely.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.