Personal loans are convenient financing options for individuals who require funds at short notice. Borrowers consider them to be more feasible because of their flexible tenors, ease of access, hassle-free online application process and nominal documentation. Moreover, they have no end-use restriction and can be used to finance an array of things.
Consequently, more individuals are opting for personal loans to meet their funding requirements. As of January 2020, the personal loan segment experienced a growth rate of 20% and accounts for around 8% of the lending sector’s portfolio.
Nonetheless, despite these interesting features, some Individuals still hesitate to opt for a personal loan. It is mainly because personal loans come with high interest rates which can be financially straining for most borrowers. Thus, go through the tips given below to avail a low interest personal loan –
- Check for seasonal offers –
While applying for a loan, keep an eye out for seasonal offers. Most lending institutions offer low interest personal loans during the festival seasons. Opting for a loan during these times can enable you to save a substantial amount.
Some financial institutions such as Bajaj Finserv also provide pre-approved offers to make the entire loan application process hassle-free and quick. Besides personal loans, pre-approved offers can be availed on multiple other financial products such as business loans, credit cards, etc. You can check your pre-approved offer by entering only some necessary details like your name and contact details.
- Maintain a high credit score –
The credit score is a numerical summarisation of your credit report, which is a number between 300 and 900. It is calculated based on several factors such as credit utilisation ratio, repayment history, credit mix, current obligations or debt. Since personal loans can be availed without any collateral, lending institutions refer to your credit score to ascertain if you are fiscally responsible and can reliably handle your credit.
Thus, if you have a poor credit score, it reflects that you are unable to manage credit properly. As a result, lending institutions will consider you to be a high-risk borrower and charge a significant interest rate; a low score is also one of the reasons for personal loan rejection.
On the other hand, a high CIBIL score opens scopes for you to negotiate with your lending institution for low interest personal loan.
- Compare lenders before applying –
You should always compare the interest rates offered by various lending institutions before opting for one. You can use online tools like personal loan calculator, where you can calculate the cost of loan, total interest payable and EMI on entering a few basic information like required loan amount, repayment period, and interest rate.
You can increase or decrease the loan and tenor to find the EMI that suits you. The calculator also enables you to plan your personal loan EMI repayment better.
- Maintain a good repayment history –
Pay off all your EMI and credit card bills on time, which will show a positive repayment history on your credit report. Accordingly, it will lend an impression to your lending institution that you can responsibly manage credits and are less likely to default.
- Understand the interest calculation technique –
There are two types of methods based on which lending institutions calculate interest on a personal loan – flat interest rate and the reducing interest rate.
In the flat rate method, the interest is calculated on the total loan amount for the whole repayment period. Whereas in reducing interest rate method, the interest payable is calculated based on the outstanding amount after an EMI.
While applying for a personal loan online, you should check with your lender regarding the interest rate calculation that they will be following. Additionally, you can also ask your lending institution for an amortisation schedule.
- Employment status –
Individuals who are working in a reputed organisation be it in the private or public sector can avail low-interest rates on personal loans. Since they are permanently employed, they have a steady income and thereby will be able to repay the loan on time. Accordingly, lending institutions offer a lower interest personal loan.
Moreover, individuals who have their own business or practise, such as doctors, chartered accountants can also avail loan at favourable rates.
In addition to this, you should also have an accurate idea of the processing and other associated fees charged by the lending institution. Some lending institutions charge hefty fees which can increase the financial burden substantially.