Personal loans are a great financial option when you need funds for various purposes, such as medical emergencies, education, home renovation, or paying off debt. One of the factors that determine your cost of borrowing is your interest rate. The minimum interest rate, the smaller the amount you will be paying over time. In this blog, we will venture into the best approaches to secure a personal loan at a low interest rate that guides you to make a final decision and ultimately save your money in the long term.
Factors Influencing Personal Loan Interest Rates
Credit Score: This is one of the most important factors. The higher your credit score, the better it is for the lender to consider you as a responsible borrower, and thus you will be eligible for lower rates. Generally, a score above 750 is excellent and can help you secure the best rates. However, a lower score may lead to higher interest rates or loan rejection.
Income and Debt-to-Income Ratio: The lender assesses your income to determine whether you can repay the loan. The higher your income, the lower your debt-to-income ratio, and the more likely you are to be a financially stable borrower who can secure low-interest loans.
Loan Amount and Tenure: Generally, a lower amount and shorter tenure of loans have lesser interest rates. The more extended the repayment period is, the more it will cost with added interest. A bigger loan amount is considered riskier to the lender, hence possibly charging a higher rate.
Lender’s Policies and Market Conditions: Every lender has different policies and risk assessment strategies. Moreover, market conditions like inflation and RBI’s monetary policy influence interest rates. Hence, the offers received from various sources must be compared.
Types of Lenders Offering Personal Loans
There are various types of lenders from whom you can borrow a personal loan, each with its advantages and interest rate structures.
BANKS
This is one of the most popular sources for personal loans. They generally have a very competitive interest rate, especially for people with good credit scores. They have, however, a strict eligibility criterion, processing takes time, and a lot of documentation is involved. Some of the well-known banks providing low-interest personal loans are:
State Bank of India (SBI): It is one of the biggest banks in India and offers personal loans from as low as 9.60% to 13.60% per annum, according to the applicant’s credit profile. Flexibility is also possible regarding repayment, and loans get disbursed quickly.
HDFC Bank: HDFC is a good place to search for personal loans with high interest rates starting at 10.50%. Their repayment tenure is flexible, and loan amounts range up to ₹40 lakhs, depending upon eligibility.
ICICI Bank: With an interest rate ranging from 10.50% to 18%, another good option one can avail of personal loan is offered by ICICI Bank. Their loan processing is very quick, and they also provide online application that makes the process all the easier.
NON-BANKING FINANCIAL COMPANIES (NBFCS)
They have much faster processing loans, easier eligibility criteria in general as compared to those provided by a conventional bank. And may, at times pay little extra on interest, so one doesn’t mind due to comfort. Some are listed as follows:
Bajaj Finserv: Bajaj Finserv is one of the most prominent NBFCs of India, with interest rates as low as 11.99%. A wide variety of personal loans are offered by this company which comes with an attractive package of zero foreclosure charges along with easy online application.
Mahindra Finance: Mahindra Finance offers the customer the opportunity for an interest rate as competitive as 10.50%, fast disbursal, and an optional choice of repayment tenure so that the borrower can avail such a loan for speedy sanctioning.
Tata Capital: Tata Capital offers personal loans with an interest rate from 10.99%. It provides loans up to ₹25 lakh with up to 72 months tenure for repayment.
ONLINE LENDING PLATFORMS
Online lending platforms offer access to a personal loan through minimal paperwork. They often have lower interest rates for lower overhead costs. And these facilities also tend to have much quicker processing times. Among the many major online lending platforms, the following are included:
MoneyTap: This also provides personal loans, beginning from interest rates at 13% per annum. Their loan amounts start at ₹3,000 to ₹5 lakh. Their process is quick, and disbursal of money takes a couple of minutes after approval.
CASHe: CASHe is an online lender that provides quick and guaranteed loans at 12% interest. It is great for young professionals who require fast loans. They provide instant personal loans with low-interest rates and quick repayment options.
FlexiLoans: The lending company offers loans at an interest rate of 11%. It is a company that gives an unsecured personal loan where a borrower can request minimal documentation. They even serve small businesses, hence making it an excellent choice for any entrepreneur.
How to Get Low-Interest Personal Loans
Here are the best ways you can get a low-interest personal loan:
Improve Your Credit Score: The interest rate largely depends on the credit score obtained by you. If your credit score is below 750, work on it before attempting to get a loan. Pay outstanding dues. Don’t do any late payments. Try reducing the credit utilization ratio in order to increase credit scores.
Compare Interest Rates: Do not take the first loan that comes your way. Shop around and compare rates from different lenders. Use online tools, such as loan comparison websites, to find the best deals for personal loans that meet your needs.
Opt for Secured Personal Loans: If you have assets, such as property or a fixed deposit, consider opting for a secured loan. Generally, secured loans have relatively lower interest rates because it is less of a risk for the lender. Failure to repay can lead to the loss of your assets.
Take advantage of pre-approved loan offers: There are pre-approved personal loans offered by banks and other financial institutions to existing customers. Since they already have a relationship with you, such loans have lower interest rates. Watch out for such offers during festive seasons.
Negotiate with your existing bank: If you already have a relationship with a bank, say, through your savings account, credit card, or loan, negotiate with them for a personal loan. This is easier because you will have negotiated a better rate due to your good relationship with the bank.
Apply During Promotional Periods: Most of the banks offer special promotions during festivals or special events. In these periods, the interest rates are lower than usual and sometimes, free processing fees are also waved.
Tips to Increase Eligibility for Low-Interest Loans
Maintain a Steady Income: Lenders prefer borrowers who have a steady income. If you are self-employed, then it is helpful to have consistent revenue and business performance.
Showcase Other Sources of Income: If you have other sources of income such as rental income, side businesses, or investments, make sure to showcase them. This helps demonstrate that you can repay the loan comfortably.
Avoid making Multiple Applications: Many loan applications within a small time span can further affect your credit score. The message you send to lenders may make them feel that you can be a high-risk customer and they will charge more interest or refuse your loan altogether.
Opt for a Shorter Loan Tenure: Shorter repayment periods are seen as less risky by lenders and come with lower interest rates. While your EMI may be higher, you’ll pay less interest over the loan’s lifetime.
Common Mistakes to Avoid While Applying for Personal Loans
Don’t ignore fine prints: Research the agreement with a loan in deep detail. Search for some charges that may be not included with the final cost of taking this loan, such as a processing fee, some type of late payment charges or even some pre-payment charge.
Falling into Loans with Teaser Rates: Some loans have tempting teaser rates that turn expensive within a few months. Find out how the rate may change and what it may do to your EMIs down the line.
Not thinking through your repayment capacity: Just borrow what you can repay. When you borrow more than what you can repay, the stress and the default eventually catch up with you in terms of damaging your credit score.
Overlooking Your Credit Score: Applying for a loan without checking your credit score can result in unexpected surprises. Ensure your credit score is in good shape before applying to secure the best rates.
Top Recommendations for Low-Interest Personal Loans in India
•SBI Personal Loan: Interest rates starting at 9.60%. Loan amounts up to ₹20 lakhs.
•HDFC Bank Personal Loan: 10.50% is the starting rate with a loan amount of up to ₹40 lakhs.
•ICICI Bank Personal Loan: From 10.50% interest rates, with a flexible repayment tenure.
•Bajaj Finserv Personal Loan: With 11.99% as the starting rate, flexible loan terms, and quick disbursal.
•MoneyTap: Instant loans with an interest rate starting at 13%, great for small amounts.
By learning how to go about getting a personal loan with low interest rates, you will have no difficulty getting the personal loan that you desire.You will be able to reduce your loan’s cost if you improve your credit score, compare various lender offers, and pick the right kind of loan for you. Always remember to borrow responsibly and never extend yourself financially. With the right approach, a low-interest personal loan will be helpful in making one financially flexible without a strain on the finances.