The personal loan segment in India registered a growth of 10.5% in June 2020, which was lower than the 16.6% growth experienced in the previous year. Even so, with a gradual increase in disposable income combined with new digital lending players in the market, personal loans are expected to continue their impressive growth in the country.
- The digital lending segment is estimated to maintain a CAGR of around 12% between 2020 and 2025.
- Apart from digital lending, the propensity to avail personal loans to fund emergency expenses has also increased in recent years. A report claims that around 37% of millennials look to such loans to finance medical emergencies and others.
Reducing personal loan interest rates are another reason for this growing popularity of such credits. Borrowers can take advantage of the lowest rates for personal loans only when they are aware of the intricacies involved with them.
How to avail the best personal loan interest rate?
Since personal loans are unsecured in nature, they tend to include stringent eligibility norms. Fulfilling these criteria is essential if one wants to acquire personal loans under the best terms.
Here are some ways to improve personal loan eligibility, which, in turn, should also lower the associated interest charges –
TransUnion CIBIL is one of the leading credit rating agencies in India, that measures the creditworthiness of individual borrowers and businesses. Based on this rating, financial institutions can decide whether they want to extend loans to a particular applicant or not. Most lenders recommend maintaining scores of 750 or more, in most cases. With higher scores, individuals can avail such credit at favourable terms.
For instance, an individual whose credit score is 830 can expect lower interest rates on his/her personal loans when compared to another borrower whose scores are limited to 740. It is wise to remember that a good credit score can help get better terms on a personal loan for a used car or any other purpose.
Diversifying monthly income
Limited income can cripple one’s chances of enjoying the best personal loan interest rates. Higher earnings suggest that an applicant has enough disposable income to service personal loan EMIs and vice versa. Meeting minimum income requirements set by a lender affects your personal loan approval.
However, if your income surpasses the minimum criteria by a significant amount, you can negotiate with a financial institution to acquire lower rates. In this regard, one can also use a personal loan eligibility calculator to assess whether he/she is qualified to avail such credit.
A healthy fixed obligation to income ratio
Fixed income to obligation ratio or FOIR refers to the proportion of an applicant’s income when compared to his/her liabilities. For instance, FOIR is high for individuals who service multiple loans at a time. Banks are reluctant to charge the best personal loan interest rates to borrowers with a high FOIR.
Ideally, one must restrict his/her FOIR to under 40% to be eligible for such credits at the optimal terms.
Qualify as per the eligibility criteria
In the case of personal loans, eligibility criteria function as a sieve to identify a credible borrower. Make sure you meet all the parameters laid by your chosen lender, such as –
- Age should be at least around 23 years, and the upper limit is around 55 years.
- Salaried employees qualify for a minimum monthly income that primarily depends on the place of residence.
For example, applicants from Nagpur, Jaipur, Cochin, etc., should earn at least Rs.28,000 per month to qualify for this loan. Again, those from Noida, Ghaziabad, Bangalore, Chennai, etc., should have a minimum monthly income of Rs.35,000.
Being eligible qualifies you for not only a higher loan amount but also a low-interest rate. An online personal loan eligibility calculator can best help evaluate the loan amount you qualify for based on such parameters. If you fail to meet all criteria, the lender may sanction a personal loan but at a higher rate of interest, considering you as a risky borrower.
Calculate the monthly outflow towards loan repayment
Loan repayment procedures usually begin after the 1st month of availing it and in equated monthly instalments (EMIs). EMIs, comprising a certain portion of principal and interest payable, need to be serviced until the tenor ends. Hence, calculating this monthly outflow is crucial to pay EMIs on time comfortably and without defaulting. It also helps you plan your EMI payment better.
The easiest way is by using a personal loan EMI calculator online. Once you enter the preferred loan amount, tenor and applicable interest rate, the tool instantly displays the total interest payable, cost of borrowing and EMIs. Here are some tricks for a low-interest rate on personal loans –
- Choose a shorter tenor. This helps lenders to peg you as a low-risk borrower, and they confidently sanction funds and that too at a lower rate.
- If you select a shorter tenor, it brings down the total interest payable, thereby increasing the EMI amount.
Choose a suitable repayment schedule and EMI according to your financial capabilities and obligations. Here, knowing how to use a personal loan calculator properly can help in making an informed decision.
Availing loans from lenders with a past history
The NBFC that one chooses for the unsecured personal loan plays an important role. A borrower should choose a financial institution with which he/she shares a favourable relationship with. For instance, if you have availed loans and repaid the same from one NBFC, try to acquire a personal loan from the same company. Doing so allows you to negotiate and leverage the existing relationship to acquire better interest rates.
Doing so also allows you to take advantage of pre-approved offers from reputed companies, such as Bajaj Finserv. These offers, available on personal loans, credit cards, business loans and others, ensure simple and quicker loan application processes. You can check your pre-approved offer by submitting your full name and contact information.
With these pieces of information about personal loan interest rates, one can choose to consolidate their existing debts with such credits. Borrowers can easily combine all their debt and repay using a personal loan.