The demand for personal loans in India has been rising even with the severe economic slowdown faced here. Even though they are unsecured financing options, which make them high-risk lending avenues for financial institutions, their interest rates are borrower-specific, with a minimum threshold.
It is also precisely one of the reasons why the demand for personal loans stood its ground. One can further secure the lowest personal loan interest rates with a few necessary measures in place.
4 Essential Factors Impacting The Lowest Interest Rate Personal Loan Availability
Between the highest and the lowest personal loan interest rates offers available in the market, the rate levy for your loan option changes as per a few specific factors. While some of these relate to your borrowing profile, others tie up to the lender concerned.
Let’s check out the four most critical ones:
- Your credit history and score
A credit score is a number assigned to individuals and entities based on their credit history. It is, most of the time, an absolute measure of creditworthiness that lenders rely on when assessing personal loan applications. Ranging between 300 and 900, a credit score of 750 and above is optimal and mandatory for unsecured financing.
Enquiring about your credit score and history, your lender can discreetly assess your past credit behavior and financial discipline followed, thus deciding upon the risk involved in lending accordingly. The interest rate levy is thus closely related to credit score. Make sure to check out things you can do to improve your personal credit score before applying for your loan. The higher it is, the better your chances of securing the lowest interest rate personal loan.
You may also get a personal loan with a poor credit score, but it is likely to attract high rates.
- Monthly income
Your monthly income is a reflection of your financial standing and how much you can afford to bear as a repayment liability per month as EMIs. Some lenders require borrowers to hold a minimum monthly income based on their city of residence as a personal loan eligibility requirement.
It is always good to meet the minimum income criteria set by your lender, an absence of which can reflect incapacity to service the advance appropriately and on time. This may lead to a higher interest charge. It is also suggested that you document all income sources when applying to represent an improved repayment capacity. Use a personal loan calculator to check repayment affordability and choose a loan amount and tenor accordingly.
- Income stability
Your income stability is another factor that impacts the risk associated with your borrowing profile, influencing the rate levy. When availing of a personal loan for salaried individuals, the reputation of your employer impacts lender perception regarding your job stability. Further, your employment history and years of experience contribute to the total stability as well.
- Interest rate levy system
Interest on instant personal loans, or any other loan, is levied either on the fixed or floating rate system. While the floating rate varies per market rate changes during the loan tenor, its fixed counterpart remains constant. However, the latter is levied at a notch higher rate than the former. It is advisable to choose between the two based on current market trends and predictions.
Interest rate levy and its relation with personal loans
Personal loans are unsecured loans. It means that these are collateral-free loans, not requiring any asset as security for approval. Now, as a lender only provides a personal loan against the borrower’s financial status, the risk of loss due to non-repayment and/or default remains high. To cover for such risk, interest is often charged at a higher rate. Of course, interest rate is a charge levied by the financial institution to make up for the time involved in lending such an amount. However, an interest rate difference between unsecured and secured advances is precisely marked by the risk factor involved, repayment tenor remaining constant.
Lending institutions like Bajaj Finserv offer competitive rates on personal loans to make financing affordable.
They also provide pre-approved offers to make financing hassle-free and less time-consuming. Along with personal loans, the offers are available on other financial products too, like credit cards and business loans. Check your pre-approved offer only with your name and phone number.
Along with seeking the lowest interest rate personal loans, also make sure to check other rates and charges applicable. All the fees levied on the loan combined would only decide the total cost of the loan a borrower bears by the tenor’s end.