Personal Loan Interest Rates

How to Get the Lowest Interest Rate on a Personal Loan?

If you are looking to apply for a personal loan, here are a few tips that will help you avail a cheapest rate of interest:

• Improve Your Credit Score: A high credit score indicates that you are creditworthy. Banks and financial institutions offer the lowest personal loan interest rates to applicants who have a high credit score. Thus, you should check your credit score before applying for a personal loan. If your credit score is less than 750, you should look for ways to improve it. There are more chances of you getting a personal loan at a low interest if your credit score is over 750.
• Avoid Missing Repayments: If you miss a loan or credit card repayment, your credit score may be adversely affected. Loan providers usually take your repayment history into account before deciding the personal loan interest rates. Those who have paid their past EMIs and credit card bills on time are likely to be charged a lower interest.
• Keep an Eye Out for Offers: Banks and financial institutions usually offer special interest rates for a limited period of time during festive occasions. If you apply for a loan while such an offer is running, you may be offered a lower rate of interest.
• Compare Interest Rates: Before applying to a particular bank for a personal loan, it is necessary to compare the personal loan interest rates charged by various NBFCs and banks. This will help you avail a personal loan at a competitive interest rate.
• Negotiate with the Lender: If you are an existing customer of a bank or have a good relationship with the loan provider, you can negotiate for the lowest interest rate. When doing this, it is advisable to submit a formal written request to the loan provider.

Factors that Affect Personal Loan Interest Rates

• Income: Loan providers take the applicant's income into account when deciding the interest rate. Individuals who have a high income pose a lower risk to the bank and, thus, might be offered a lower interest rate. On the other hand, those with lower annual incomes may have to pay a higher interest rate.
• Employer Details: If you work for a reputed organisation, the bank/financial institution is more likely to offer you a lower rate of interest.
• Nature of Employment: Loan providers may offer different interest rates to applicants based on whether they are self-employed or salaried.
• Age: The age of the applicant can also have an impact on the interest rate quoted by the loan provider. Individuals who are nearing retirement age may be charged a higher interest rate.
• Relationship with the Loan Provider: Existing customers of the bank/financial institution may be offered a lower rate of interest at the time of applying for a personal loan, provided they have a good relationship with the loan provider. This is, however, at the discretion of the bank and not all existing customers will be offered a preferential interest rate.

Fixed Interest Rates vs Floating Interest Rates: Which is better?

The benefit of opting for a fixed interest rate is that you know exactly how much you will be charged during the loan tenure. Thus, those who wish to plan their finances in advance can opt for a fixed interest rate.

If you, however, don't mind a fluctuating interest rate, you can opt for a floating/variable interest rate. The benefit of opting for a variable interest rate is that your repayment amount will reduce when the interest rate is low.

How Reducing Balance Interest Rates Work in Personal Loans

When you avail a personal loan at a flat interest rate, the interest is calculated on the entire loan amount throughout the loan repayment period. In comparison, if you avail a loan at a reducing interest rate/reducing balance rate structure, the interest is only calculated on the outstanding loan amount. Thus, in this case, when you make a monthly repayment, the interest for the remainder of the loan tenure will be calculated on the outstanding loan balance.

Important Considerations Before Choosing a Personal Loan Interest Rate

While selecting a personal loan with a low interest rate, there are a few other things that you should consider:

• Processing Fee: Loan providers levy a one-time charge known as the processing fee, which can increase the cost of the loan. Even if you are charged a low interest, it is important to check and compare the processing fee charged by different lenders.
• Pre-Closure Charges: Certain banks may charge you a pre-closure fee if you repay the outstanding loan balance before the completion of the loan repayment tenure. Make sure to check if the bank/financial institution that you are applying to levies a pre-closure charge.
• Customer Service: In order to have good borrowing experience, it is necessary to apply to a lender that offers good customer service. Before submitting your loan application, you should check the customer care channels that are available and how prompt the lender is in providing you assistance when required.
• Eligibility Criteria: While the bank or financial institution may offer personal loans at low interest rates, you should make it a point to check if you meet the eligibility criteria specified by the lender. To this end, you should ensure that you check if your income meets the set limit and if you meet the age requirements specified.
• Loan Disbursal Time: If you are looking to take a personal loan due to an emergency, it is important to take the loan disbursal time into account. A number of leading banks and financial institutions disburse the loan amount within a matter of seconds.
• Other Charges: While the lender may charge you a slightly higher interest rate, you may be able to save on the overall cost of the loan if the processing fee, default charges, pre-payment fee, Loan Cancellation Charges, Check/EMI bounce charges, Instrument return charges, Stamp Duty Charges, Duplicate statement issuance charges, swap charges, Duplicate Amortization schedule issuance charges, etc., are low. Thus, make sure you compare the various charges levied by the lender before applying for a personal loan.
• Discounts: Although the bank/financial institution may have specified a high interest rate, you can try to negotiate with the bank for the lowest interest rate. Many times, lenders will give a discount to existing customers and to those who have maintained a healthy relationship with them.
• Special Offers: Certain lenders may charge you a lower interest rate during festive occasions.

*Some loan providers do charge a comparatively higher interest rate; however, you should take certain other factors into account before making a decision.

How to Calculate EMI on Your Personal Loan?

You can use the Personal Loan EMI calculator offered by BankBazaar to calculate the EMI you will have to pay. You will have to enter the loan amount, repayment tenure, interest rate, and the processing fee to know the EMI you will pay on a monthly basis.

Additional Charges You Should Know Before Taking a Personal Loan

Apart from your loan rate, there are a few other charges that form a part of your cost. These include the following:

• Processing charges - for processing your application
• Verification charges - for verifying your background and other parameters
• Government taxes - for example, GST
• Late payment fees - if you don't pay your EMIs on time
• Prepayment fees - if you want to prepay a part of your loan
• Foreclosure fees - if you want to close your loan ahead of schedule

How Lenders Calculate Prepayment Charges on Personal Loans

The prepayment fee is usually calculated in two ways:

• As a percentage of the amount you want to prepay, or
• As a percentage of the principal amount outstanding at the time of prepayment.

Some lenders may charge you a fixed fee for this facility.

A good credit score can help you secure lower interest rates on loans and credit cards.

Get Free Credit Score