How To Get a Personal Loan at Low Interest Rate?
A personal loan with less interest rate can help an individual in needful situations, especially for educational needs, supporting medical bills, buying a home or car, or other expenses. These loans are very easy to get, as the interest rate depends on the person's credit score or previous loan payment history. That is why a person should follow certain habits before taking a personal loan to avoid paying a high interest rate. Read this complete guide to learn about personal loan, its types, and how to get it at a low interest rate.
Table of Content
- What is a Personal Loan?
- What are the Different Types of Personal Loans in India?
- Why Choose Personal Loan?
- What is Personal Loan Interest Rate?
- What are the Factors Affecting Personal Loan Interest Rate?
- How to get a Personal Loan at low Interest Rate?
What is a Personal Loan?
A personal loan refers to a lump sum of money that you borrow from a bank or online lender for your personal use. The principal loan amount, along with the interest, is repaid by borrowers in EMIs over a pre-decided tenure, generally ranging from 1 to 5 years. To qualify, the applicants have to meet certain eligibility criteria based on their income, credit profile, repayment capacity, etc.
What are the Different Types of Personal Loans in India?
Personal loans can be used for a variety of purposes, including education, medical expenses, travel, home renovation, or debt consolidation. Since personal loans are unsecured, you are free to use them for almost any personal financial need.
- Personal loan for travel: This type of loan helps individuals finance the cost of travel. A personal loan for travel can cover the cost of hotels, flights, and other travel expenses.
- Medical loan: Used to pay medical bills. It includes hospitalisation, treatment costs, surgery costs, and insurance premiums.
- Debt consolidation loan: If you have multiple EMIs or credit card bills, a lowest interest rate personal loan allows you to merge all of them into one.
- Home renovation loan: This type of personal loan helps you to finance home renovation projects, such as remodelling a bathroom or kitchen, updating the home exterior, or adding a room.
- Personal loan for upskilling: Specialized training, short-term courses, and certifications often don’t qualify for education loans. Hence, choosing the right personal loan with less interest rate can help you invest in your dream career without financial roadblocks.
- Wedding loan: This type of loan is specifically used to cover the wedding expenses, such as wedding venue, attire, catering, and other expenses.
Why Choose Personal Loan?
In today's world, personal loans are available in a wide variety, which explains why they've become so popular. But what makes these loans stand out? Check the benefits of borrowing personal loans in India and why you should choose them even when you have other choices.
No restrictions: Depending on your needs and credit card history, you can borrow a substantial amount with a personal loan without any restrictions on its use. Whether you want to upgrade your home or go to shopping, a personal loan helps you fund your big purchases.
Simplifies access: A personal loan can be availed without pledging any valuable assets as collateral. Therefore, it’s an excellent financing tool for big purchases with no risk to your assets.
Flexible repayment option: Most non-banking financial companies and banks provide personal loans, which you can repay over 1 to 5 years. Before choosing the loan, compare the different options and the best personal loan interest rates that your lender offers.
Minimum documentation: The processing time needed for a personal loan is much lower than for other loans. As an Indian citizen, you can get a personal loan by providing a few documents like address proof, ID proof, and income proof.
Competitive interest rate: With so many options available today, you can choose the cheapest personal loan interest rate, making them more affordable than informal borrowing.
What is Personal Loan Interest Rate?
As we all know, whenever we take a personal loan, we have to take a specific rate of interest. The personal loan interest rate is calculated as a percentage of the total amount of the loan. In simple terms, lenders decide your loan interest rate based on different factors such as:
- Your credit card score
- Current market conditions
- Your Income details
Moreover, there are two types of personal loan interest rates: fixed and floating. The fixed interest rate stays the same throughout your loan term. On the other hand, a floating interest rate can change based on current market conditions. This means your EMI can go up over time.
What are the Factors Affecting Personal Loan Interest Rate?
Getting the best personal loan deal is not just about choosing the correct lender, but it’s also about how strong your financial profile is. Let’s break down all the main things that lenders need to look at when deciding your personal loan interest rate:
CIBIL Score: The higher your CIBIL score, the more trustworthy you appear to lenders. Hence, a good score means a lower interest rate you get from lenders.
Borrower occupation: Whether you are a self-employed or salaried employee, your occupation plays a major role in determining your personal loan interest rate. Salaried individuals may get the lowest interest rate personal loan due to their stable income.
Monthly income: A higher income shows better repayment capacity. Hence, a stable monthly income can help you access a personal loan with less interest rate at the end of the scale.
Age of the borrower: Younger applicants, especially those in their 20s or 30s, may get a lower interest rate because they have more working years ahead, providing longer repayment potential.
Debt-to-income ratio: This ratio is the percentage that shows how much your monthly income goes towards paying EMIs and bills. A lower ratio means you have a better chance of getting loan approval and a low interest personal loan. Conversely, a higher ratio of DTI could result in a rejected loan and a higher rate of interest.
Relationship with the lender: If you already have a past loan history with a lender and a good track record of repayment, you might get the cheapest personal loan.
How to Get a Personal Loan at Low Interest Rate?
Getting the lowest interest rate personal loan becomes crucial, but how do you obtain it? Here are some quick ways to obtain a personal loan with a minimal interest rate:
Maintain a good credit card score
Your credit score is a major factor that impacts your personal loan interest rate. Having a good credit score, generally 750 or above, helps you to get a personal loan at the lowest interest rate. If your credit score is low, then try to improve it over time by paying all your dues and EMIs on time.
Good record of repayment history
To get a personal loan with less interest rate, clear off your debt. If you have any pending bills and have other existing loans, then make sure you pay the bills and EMIs on time.
Compare different personal loan interest rates
Depending on your loan requirement and eligibility, explore the financial marketplace and various institutions to know their interest rates on personal loans.
Employment status
If you are working in a reputable company, then there is a high chance you will get the most favourable personal loan deal. Most banks consider it essential that the individual applying for a personal loan has a good source of income for repayment. Hence, an employed person has a higher chance of getting a personal loan with a low interest rate.
Keep an eye on offers
If you want to get a lower interest rate personal loan, you should always wait for an offer period before applying. The offer period is when the bank or institution is flexible with factors that have to be met before approving a loan.
Various factors affect the personal loan interest rate, and it is important to understand them before taking out a loan. The most common factors are your income, age, credit score, debt-to-income ratio, and employment history. Hence, before applying for a personal loan, check the lender's eligibility criteria and how you can get low interest personal loan.
Frequently Asked Questions On How To Get a Personal Loan at Low Interest Rate?
1. What credit score is required for a personal loan?
If you have a credit score of 750 or above, you usually have a higher chance of availing personal loans with low interest rates.
2. Do banks and NBFCs check my job status before approving the loan?
Yes, most of the banks and non-banking financial companies prefer applicants with consistent work history and steady employment.
3. What documents do I need to submit for a personal loan?
Essential documents include the last 3-month salary slip, a bank statement, an Aadhaar card, and a PAN card.
5. Can the lender change the loan interest rate during the personal loan tenure?
A lender can change the personal loan interest rate if it’s a floating-rate loan, which is based on market conditions. However, most personal loans are typically fixed rate, in which the EMIs and interest rate stay the same throughout the tenure.
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