During the fourth quarter of CY2019, lending institutions in India disbursed around Rs.3.29 lakh crore as personal, unsecured loans to consumers. Comparatively, the amount was just Rs.2.47 lakh crore during the same period in CY2018.
- Number of personal loan accounts in Q3 CY2019 was 2.35 crore, which reflected a YoY growth of 48.1%.
As these credit applications grow, individuals are seeking various avenues to avail low interest personal loans. Thus, to ease matters in acquiring such a loan, here is a look at some ways to reduce the interest payable.
Lower interest rates on a personal loan
Interest rates on secured loans tend to stay unchanged across most lenders. The same is not true for unsecured loans, however. Depending on the lending institution and the borrower’s eligibility, interest rates for such loans tend to differ significantly.
Listed below are a few factors that can affect interest rates –
- Borrower’s credit score
The key to availing a low interest personal loan is for an applicant to maintain a desirable CIBIL score. Lenders today require a credit score of at least 750 to approve unsecured loan applications. Nevertheless, higher scores of an individual can encourage financing companies to extend loans at lower rates.
- According to a survey, 28% of Indians check their CIBIL rating to prepare for loan and credit card applications.
- 29% of those surveyed claimed that they checked their credit rating just to improve it.
Hence, one of the things to avoid while taking personal loans is to approach a lender with a low CIBIL score. Doing so can jeopardise your chances of availing such loans at the lowest rates.
How to improve credit score?
Borrowers should pay off outstanding dues within their repayment schedule. Additionally, payment of credit card bills on time can also lead to a boost in the credit score. Keep in mind that low CIBIL score is one of the primary reasons for personal loan rejection.
An applicant’s earning potential is a crucial determinant for personal loan interest rates. Borrowers not only need to disclose their yearly income during loan application but also provide sufficient documentation as evidence of the same.
Documents may include salary slips or bank account statements, depending on whether the applicant is employed with an MNC or public/private company or a self-employed individual. Some institutions may extend personal loan without income proof, but these loan offerings tend to draw greater interest due to the lender’s increased risk.
Thus, an individual planning to avail low interest personal loan must be able to show an income that is considerably more than the minimum standards set by his/her lending institution.
- Reputation of the borrower’s employer
An individual who is employed in a reputed multinational company is more likely to avail personal loans at lower interest rates when compared to one who is employed at a small firm.
Similarly, government employees are often entitled to receive better terms on their loans since financial institutions perceive the job security of these consumers to be higher.
Historically, delinquency rates tend to be lower for individuals working in established companies and positions.
Thus, the personal loan verification process involves a thorough check of the applicant’s employment background.
- Existing customers are preferred
Individuals who already have an account at the financial institution from where they are availing the personal loan may receive preferential treatment when it comes to the loan interest rate.
Existing customers are also eligible to receive pre-approved offers. Bajaj Finserv is an NBFC that provides pre-approved offers to ease the process of availing financing while making it faster. These offers are available on a range of unsecured credits, including personal loans, business loans and more. You can check your pre-approved offers simply by submitting your phone number and name.
- Apply jointly
Applying jointly with a co-borrower is also one of the ways to secure a personal loan with low interest.
Two earning borrowers with a good CIBIL score lowers the risk associated with the loan drastically for the lender as the chances of default are next to none. Hence, financial intuitions may offer the lowest possible rates.
Before applying, it is recommended that borrowers compare all the available options. Looking for online personal loans can give potential borrowers the opportunity to do the same.
Whether it is a personal loan for travel, home renovation, medical emergency, higher education, wedding, or even an exotic vacation, borrowers can address any situation with the same.
And, following the above-mentioned suggestions can ensure that you receive the lowest rates. Additionally, you can also part-prepay the loan whenever possible to reduce the payable interest.