Well, if you think you could dive straight to avail a low interest personal loan, you can, but first get to know the five factors affecting interest rates on personal loan
Using personal loans with a low-interest rate, the lenders will look into many factors to consider, such as the background, profile, and type of loan applicant. Here are some of the critical deciding factors to overcome while availing a low-interest personal loan –
Income (passive/active) and Organisation:
The income/ rental salary of the borrower plays a crucial factor for lenders when deciding to offer a personal loan—the bigger the income, the lower the interest rate. Here’s why! Personal loans with low-interest rates are disbursed once the bank is convinced that the individual earns a good income. Usually, salaried individuals have better chances of getting low-interest rates, more than self-employed as the latter’s income is not fixed.
Credit Score for lower-interests:
A lender always looks at your credit score to determine the borrower’s credibility. It signifies an individual’s capacity to repay the borrowed amount. It is a 3-digit numeric rank given by the Credit Bureau to individuals based on their repayment history. The higher the credit scores are, the better their chances of securing a personal loan with a low-interest rate. A credit score between 750 and 900 is considered ideal and safe by most lenders. This score becomes a deciding factor for banks and financial institutions to determine personal loan interest rates. In addition to having a history of irresponsible repayment, applying for numerous loans from different lenders in a short period will harm the borrower’s credit score.
A personal loan is an unsecured credit that individuals can borrow from banks and other financial institutions for various purposes, including short-term financial needs – holidays, marriage, car purchases, home renovations, or even personal and medical emergencies.
- It does not require any collateral or security, or minor documentation. Personal loan interest rates vary across banks and other financial institutions depending on the lender’s and borrower’s credit score, besides the applicant’s economic history.
- It is advisable to apply for personal loans after calculating interest rates, processing fees, and EMI. The interest rate is the most crucial factor to consider when applying for a personal loan.
A low-interest rate personal loan would mean low EMIs. When deciding on personal loan interest rates, banks and other financial organisations take several factors into account, including the type and profile of the borrower.
Borrower’s Loan Payment History and FOIR (Fixed Obligation to Income Ratio):
Before approving personal loans or choosing a personal loan interest rate, your credit history and history of loan payback would be thoroughly examined. If you had been diligent and disciplined with repayment in the past, then lenders would feel more guaranteed about providing loans.
Banks assess whether the individual has defaulted on payments in the last 12 months. If there has been a delay or default, a personal loan application will get rejected or charge a high-interest rate. You can calculate the FOIR by using :
FOIR = (Sum of total debt / Total monthly Income) * 100
If FOIR is, on average, between 40% to 50%, the situation is ideal, and the borrower is considered capable of paying back the loan on time. For lenders, a percentage over 50% is bad news, and as a result, sanctioning, and interest rates on personal loans will be affected.
Banking Relationship:
Your history of bank deposits, savings accounts, salary accounts, credit cards, etc., is an important element when applying for a personal loan with low interest rates.If the individual had been a loyal customer of the lender, it would be beneficial for the borrower to get the best personal loan interest rates.
You can be eligible for low-interest loans if you routinely use their services and develop positive relationships with bank workers.
Categorise Yourself With The Applicant type :
While background, employment history, and income are deciding factors in securing low-interest loans, another factor that would be considered is the type of personal loan you require.
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Salaried/Self Employed
Self-employed individuals aren’t considered safe bets because their earnings aren’t fixed, while salaried employees are considered to have steady income and jobs. So, a salaried individual working in a reputed organisation has a better chance of getting personal loans with a low rate of interest than a self-employed individual.
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Women
Certain banks and financial institutions encourage women’s entrepreneurship or promote salaried women to become financially stable and support them by giving out personal loans with low-interest rates. HDFC, Bajaj Finserv, and Fullerton India offer attractive interest rates for women.
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Retired Pensioners
Pensioners who have been active customers of banks like the State Bank of India (SBI), Bank of India (BOI), and UCO Bank are eligible for low-rate personal loans from these institutions.
Top Banks and NBFCs with Low Interest Rates -2022
| Bank Name | Interest Rate | Processing Fees | Loan Amount | EMI/1 lakh for 1 year (Rs.)
|
| State Bank of India | 9.60% onwards | Up to 1.5% | Up to 20 lakhs | 8,773 |
| Central Bank of India | 9.85% onwards | Up to Rs. 500 | Up to 10 lakhs | 8,785 |
| Union Bank of India | 10.60% onwards | 0.50% | Up to 15 lakhs | 8,820 |
| Punjab National Bank | 8.90% onwards | Up to 1% | Up to 20 lakhs | 8,741 |
| Indian Bank | 9.20% onwards | Up to 1% | As per the applicant’s profile | 8,754 |
| Bank of India | 12.15% onwards | Up to 2% | Up to 10 lakhs | 8,892 |
| IDBI Bank | 9.50% onwards | Up to 1% | Up to 5 lakhs | 8,768 |
| Bank of Maharashtra | 8.90% onwards | Up to 1% | Up to 20 lakhs | 8,741 |
| UCO Bank | 8.45% onwards | Up to 1% | Up to 10 lakhs | 8,720 |
| HSBC Bank | 9.25% onwards | Up to 1% | Up to 30 lakhs | 8,757 |
| Kotak Mahindra Bank | 10.99% onwards | Up to 3% | Up to 15 lakhs | 8,838 |
| Bajaj Finserv | 11.00% onwards | Up to 3.85% | Up to 25 lakhs | 8,838 |
| Tata Capital | 10.99% onwards | Up to 2.75% | Up to 25 lakhs | 8,838 |
| Stash Fin | 11.99% onwards | Up to 10% | 1000 to 5 lakhs | 8,884 |
| Faircent | 12.00% onwards | Up to 8% | Up to 10 lakh | 8,885 |
| Kreditbee | 15.00% onwards | Up to 6% | 1000 to 4 lakhs | 9,026 |
| Yes Bank | 10.75% onwards | Up to 2.50% | Up to 40 lakh | 8,827 |
| HDFC Bank | 10.50% onwards | Up to 2.50% | Up to 40 lakh | 8,815 |
| MoneyTap | 13.00% onwards | Up to 2% | 3000 to 15 lakh | 8,932 |
| Fullerton India | 11.99% onwards | Up to 6% | Up to 30 lakh | 8,884 |
| Indiabulls | 13.99% onwards | Up to 3% | 1000 to 15 lakh | 8,978 |
| RBL Bank | 14.00% onwards | Up to 3.5 % | 1 lakh to 20 lakh | 8,979 |
| Muthoot Finance | 12.00% onwards | Up to 3.5% | 50,000 onwards | 8,885 |
| Money View | 15.96% onwards | Up to 8% | 5000 to 5 lakh | 9,071 |
| Early Salary | 18.00% onwards | Up to 2% | 5000 to 5 lakh | 9,071 |
| PaySense | 15.96% onwards | Up to 3% | 5000 to 5 lakh | 9,071 |
| Home Credit | 24.00% onwards | Up to 5% | Up to Rs. 5 lakh | 9,168 |
| CASHe | 33.00% onwards | Up to 3% | 6000 to 3 lakhs | 9,897 |
Apply For a Personal Loan With These Easy Steps!
Eligibility
The minimum personal loan eligibility is:
– The applicant should be at least 21 years of age at the time of loan application
– The applicant must earn a minimum of Rs. 25,000 per month in net income.
– The applicant must have worked for the company for at least two years and at least one of those years in the current organisation.
- Employees working in private or public companies and central, state, and local bodies are eligible to apply.
- Should have completed a minimum of one year stay at the current residence.
The following step is to ensure all the requirements for low-interest personal loans are satisfied after the eligibility criterion has been met.
Compare All Offers
While looking for a personal loan with low-interest rates, you must have details of the interest rates of every bank or institution in front of you. It is essential to review each bank’s website, understand the interest rates and processing costs, and conduct an informed comparison before selecting the best option. When a comparative analysis is done, you would stumble upon attractive offers and determine the best personal loan interest rates that suit your needs.
Apply With a Known Lender
It is more likely to receive preferential interest rates from a bank or financial institution that you have used for regular transactions and deposits than from an unfamiliar financial organisation. The relationship that you have with the bank can lead to the bank giving discounts, offers, and loans with low-interest rates. Due to familiarity, trust is built between the financial organisation and the applicant, leading to better bank loan interest rates.
Maintain a Good Credit Score
The credit score determines your credibility, and the lesser the debts and loan defaults, the better the your credit score will be. If the credit score is high (750 and above), the chances of getting a personal loan with low-interest rates are high. It is always advised that you maintain a healthy credit score by keeping track of all financial transactions and being responsible for repayments.
Leverage Work Credentials
For a lender, stable employment status is vital as it indicates whether you can pay back the amount on time. If you are employed by a renowned company and have a steady job, your chances of getting a personal loan with cheap interest are higher. As a result, you should benefit from their position and corporate reputation to get favourable interest rates.
How to Calculate Personal Loan Interest Rates?
The rate of interest charged by banks and other financial institutions is calculated by considering various important factors –
Credit Score
This score indicates your creditworthiness. The greater the credit score, the more favourable the interest rate. The minimum credit score needed to get approved for a personal loan varies depending on the lending banks or institution’s rules.
Principal Amount
A good repayment history will bring you the benefit of obtaining a larger amount of personal loans with minimum interest rates.
Loan Tenure
If the repayment tenure is shorter, then the interest rate will be lower.
Calculating The Interest on a Personal Loan Involves:
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Flat Rate Method of Interest Calculation:
In this method, The initial principal amount is used to determine the personal loan interest rate, and the principal repaid is not considered. In this case, the interest rate is fixed for the duration of the loan—this method of interest calculation results in a higher EMI.
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Reducing Balance Method of Interest Calculation:
After each EMI payment in this scenario, the remaining loan balance is decreased. As a result, only the current loan amount is used to determine the interest for the following month. Here, interest is calculated on this decreasing loan amount rather than the total amount borrowed at the start. Therefore, the principal amount still due at the end of a specific time is used to determine the personal loan interest rate.
How to Calculate EMI on a Personal Loan
The interest on a personal loan is calculated in the following manner:
EMI = [P x (R/100) x {1+(R/100)} ^N]/[{1+(R/100)} ^(N-1)]
Where,
EMI = equated monthly instalments
P = the principal amount borrowed
R = loan interest rate (monthly basis) = annual interest rate/12
N = loan tenure (in months)
Let us assume that a borrower borrows a sum of Rs. 7 lakhs at a rate of 12% for a tenure of 5 years, the interest for the 1st month will be calculated as follows:
(7, 00,000*0.12/12) =7,000
Check the bank loan interest rates of the top 10 banks in India that are offering the lowest interest rates on personal loans:
Always Remember
Make Repayment a Priority:
To get better rates on interest, it’s important to pay your credit card bill and other EMIs on time. You can negotiate better for a lower interest rate with a responsible credit history.
Look for Deals and Offers:
Be updated about seasonal offers and schemes that banks introduce, especially during the festive season, which will promise lower interest rates on personal loans.
Calculate Interest Carefully
Even though the interest rate is low, you may still be required to pay extra, mainly if you use a flat rate. Take into consideration the processing fee of each bank, which varies amongst banks.
Customer Service of Banks
Opt banks and institutions that offer impressive customer service and regular assistance in loan sanctioning and repayment etc.
Also Read: Timely Repayment of Loan EMIs: Important Benefits At A Glance!
Conclusion
To summarise, a personal loan is one of the most hassle-free loans disbursed by banks and other financial entities. Suppose the lender is convinced of your repayment capacity after evaluating your credit scores, income level, employment history, and other factors. In that case, it is likely that you get good deals on interest rates. While the interest rates on personal loans may vary depending on the lender, it’s best recommended to keep an eye on offers, compare all the interest rates, leverage your employment status, and hold a good credit score, this will be able to secure you the best interest rates to achieve your financial goals. If you are looking to apply for a personal loan, you can use the Buddy Loan platform to be connected to reputable lenders who offer personal loans at competitive rates.
