Unsecured credit facilities in the form of personal loans have experienced a striking rise in demand in recent times as more individuals are expressing concern over collateralising high-value assets. According to RBI, personal loans are now 28% of the total credit share in the books of lending institutions.

  • The report also stated that as of February 2020, total credit extended by financial institutions saw a 7.3% YoY growth to finish at Rs.89.8 lakh crore.
  • According to another report, the total retail loan book size is projected to reach Rs.96 trillion in the next five years.

One of the primary reasons for this growing popularity is the easy availability of these credits through several customised offers and attractive interest rates. While unsecured loan rates vary from lender to lender, the best personal loan interest rates are usually reserved for applicants with a high CIBIL score.

There are several factors based on which lending institutions determine the loan interest rates. To maximise savings over the loan tenor, borrowers can utilise these factors to improve their personal loan eligibility and avail cheaper interest rates.

How to get the best personal loan interest rates?

Following are the pointers one should keep in mind while planning to reduce the interest burden on a personal loan.

  • Maintain a healthy credit score

Credit score is one of the most critical criteria that financial institutions check before extending unsecured personal loans in India. It is essentially a sum reflecting repayment history, number of open accounts, total levels of debt, among other factors. Usually, a credit score of 750 or above is required for loan approval.

With a healthy CIBIL score, borrowers can also negotiate with the lender for a better personal loan interest rate. One can improve his/her credit score by maintaining a regular repayment schedule and borrowing a healthy mixture of unsecured and secured debt. 

Paying off all existing debts on time and keeping a FOIR below 40% are some things you can do to improve your personal credit score.

  • Cite additional income sources to increase repayment capacity

Since getting a personal loan with a poor credit score can be pretty tricky, applicants in such situations can use their income credentials to boost their chances of securing a personal loan with low-interest rates.

Apart from salary, individuals can cite additional income sources such as rental advances, income from investments, etc. 

  • Lower credit utilisation ratio

Credit utilisation ratio refers to the percentage of a borrower’s total existing credit that is currently being utilised. Financial experts will always advise maintaining this ratio between 30-40% to get the best personal loan interest rates. 

The credit utilisation ratio usually focuses on a borrower’s revolving credit. For example, an applicant has an approved balance of Rs.100,000. Suppose out of this, he/she has currently utilised Rs.25,000. This translates to a credit utilisation ratio of 25%, which lenders consider a good score and are likely to extend low-interest personal loans.

  • Compare lenders before applying

One of the first things to do before applying for a personal loan is to compare the market rates between multiple lenders. Potential applicants can use EMI calculators available on a lender’s official website to calculate their monthly liabilities against different interest rates and choose one that best suits their financial health.

That being said, applying for low-interest rates with multiple lenders lead to numerous enquiries, which is considered a sign of high credit risk, impacting the chances of loan approval.

Financial institutions like Bajaj Finserv also extend several pre-approved offers with minimal documentation and quick fund disbursal to streamline the application process. These offers are available on products like personal loan, business loan, credit cards, etc. You can quickly check your pre-approved offer using a few essential credentials.

To avail the best personal loan interest rates, potential borrowers will have to thoroughly compare the market rates and settle on a lender offering favourable terms that best suit their requirements. Not only will this lower the monthly outgo, but it will also facilitate efficient management of personal loan EMI repayment. With these factors in mind, individuals can effectively avail of a personal loan against the lowest interest rates.

Other ways to reduce loan interest rates 

Besides the above-mentioned steps, there are some other tips to avail of affordable personal loan interest rates. 

  1. Maintain a CIBIL score above 750. The closer you are to 900, the better are your chances of low rates. Check out a few things you can do to improve your personal credit score.        
  2. Make sure your credit profile does not feature negative factors like loan defaults. A good financial discipline, proper credit mix, timely bill & EMI payments and other such factors make your credit report stronger. 
  3. Try to maintain a FOIR below 30% – 50%. It is the ratio of your fixed obligations to your income. Reduce your existing debts for a better deal. 
  4. Negotiate with the financial institution for low rates of interest. 
  5. Provide an additional source of income. It strengthens your financial stand and makes you more eligible for a reduced rate of interest.  
  6. Try to maintain employment stability at a reputed company or organisation. Lenders consider this factor to assess your repayment capability. 
  7. Approach financial institutions which you have dealt with before, as relationships go a long way. Besides personal loan interest rates, they also provide exclusive offers to their existing customers like pre-approved offers.   

Pre-approved offers extended by top NBFCs in India like Bajaj Finserv simplify the process of availing loans and save a significant time. Such schemes are provided on a variety of financial products, including personal loans, business loans and credit cards. To check your pre-approved offer, enter basic details like your name and contact number.

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