Over the years, the personal loan segment in India has witnessed a steep rise, owing to its ease of availability and no end-use restrictions. However, due to the massive economic slowdown surrounding the country for the previous two years, the delinquency level for loans unpaid rose to 12.7% in March 2021.
One of the primary ways personal loan borrowers can steer clear of defaulting is by opting for the lowest personal loan rates. This will significantly reduce the EMIs, thus, easing repayments.
Here are a few ways to avail the most competitive interest rates:
Compare different lenders
A little research can be of massive help when it comes to personal loans. Thus, before applying for this credit option, ensure to draft a thorough comparison between different lenders in the market.
In addition, one might consider checking with their existing lender, as they often offer personal loans at relatively competitive terms due to a pre-existing relationship.
Maintain a high credit score
This is one of the primary criteria that lending institutions consider before approving a loan application. An individual’s credit score determines their creditworthiness. Since personal loans are collateral-free, lenders are reluctant to provide credit to individuals with a poor credit score.
Thus, it is essential to maintain a healthy credit score to obtain the lowest interest rate personal loan.
A few things you can do to improve your credit score are:
- Checking credit report regularly
- Maintaining a healthy credit mix
- Ensuring timely debt payments
- Avoiding applying for multiple loans at the same time
Besides these, one must also monitor their co-borrower’s account for timely repayments, as delayed payments can hamper the credit score of both the primary borrower as well as the guarantor.
Check interest calculation method
Another crucial thing to know before an individual proceeds to apply for a personal loan is to assess the interest calculation method. Specifically, even with a lower personal loan interest rate, some might end up paying huge interest amounts at the loan tenor’s end. This happens because the interest calculation method can vary from one lender to another.
Typically, lenders disburse loans at a reducing or flat interest rate. In the case of the former, interest payment is calculated on the principal outstanding. Thus, the EMIs tend to reduce gradually throughout the tenor. Meanwhile, the interest payment calculation is done on the entire principal amount throughout the tenor concerning the latter.
Thus, one must consider the repercussions of their choice before making a borrowing decision. An EMI calculator could come in handy to simplify this process. This online tool would help one determine the suitable loan amount and tenor to manage the repayment better.
Maintain a good employment history
Employment and residential stability are a few common eligibility parameters set by most financial institutions. Thus, maintaining a good employment history is one of the factors affecting the personal loan interest rate.
Usually, lenders require the borrower to have an employment history for two years, including a year with the current employer. More importantly, financial institutions consider individuals employed with the state or central government more creditworthy.
Meanwhile, one’s reputation and financial stability also play an essential role in getting the lowest personal loan interest rate.
Maintain a low FOIR
Financial institutions judge a potential borrower’s creditworthiness strictly, especially for personal loans. In this regard, FOIR is an essential metric. Also termed as fixed obligation to income ratio, this metric helps the lender determine a borrower’s repayment capacity.
In simple terms, FOIR measures a borrower’s monthly outgo in relation to their monthly income. This calculates a particular individual’s disposable income. Ideally, one should try to keep this ratio between 40% and 50%. Meaning that one’s monthly expenses must not exceed 50% of their income.
The process of choosing the most competitive personal loan interest rate is overwhelming. However, several lenders also provide seasonal offers on various credit options to entice borrowers.
Besides considering the above-mentioned pointers, borrowers must also lookout for a few more things before availing of a personal loan. For instance, certain financial institutions also extend hassle-free application procedures through online personal loans.
At the same time, many leading NBFCs across the country, like Bajaj Finserv, offer pre-approved loan offers for existing customers. These offers apply to personal and business loans and help streamline and simplify the loan application procedure. Further, you can check your pre-approved offer within seconds by entering your name and contact details. Consider these pointers to avail the lowest personal loan interest rate. However, ensure that the research towards choosing the ideal lender should not end with only the interest rate. One should check the terms and conditions, processing fee, prepayment charges, and much more before making a borrowing decision.
Additional Read: How can you make your finances continuously grow in future?