An Instant Personal Loan can be a go-to solution when you are struggling to organise funds during a financial emergency. These loans come with fast approval and minimum documentation for multiple uses. However, to minimise the overall loan repayment, getting a low-interest loan is helpful. This blog will discuss the best tips through which you can secure a low-interest Personal Loan in India.
Understanding Personal Loan Interest Rates
When taking out a Personal loan, there are many factors that play a key role in determining the interest rate for Personal Loans like your credit score, income, and employment status. Banks take into account these factors before finalising the interest rate for the loan. It is important to know that lower interest rates imply smaller EMIs and overall savings on repayment in the long run.
Tips to Secure a Low-Interest Personal Loan
Here are the various tips to secure a low-interest Personal Loan:
- Ensure a High Credit Score
When securing a loan from a bank, it is important to take into account your credit score. Having a high credit score ensures a competitive interest rate for Personal Loans. When you showcase a high credit score of 750 or more, it helps you secure a low-interest loan. To boost your credit score, you must pay your credit card bills and EMIs on time. You must also avoid multiple loan applications within a short period. Try to keep your credit utilisation ratio low, i.e. below 30%.
- Choose the Right Bank
Different banks offer different interest rates for Personal Loans. Comparing banks can help you find the most affordable option. You can use online loan comparison platforms, check for the best loan offers and finally choose the bank that offers the best interest rates along with the best loan terms.
- Choose Tenure Carefully
If you are looking to secure less EMI but can afford higher interest payments over time, then choose a longer tenure and vice versa, choosing a shorter tenure means more EMIs but lower interest rate which can help save money in the long run.
- Have a Stable Income and Job
When applicants have a stable job and income, it means banks will prefer them for a higher loan amount at a decent rate of interest. It implies timely repayments with a good credit history. For example, being a salaried employee and showcasing that you work with a reputable company or the government naturally increases your chances of getting a lower interest rate. If you are a self-employed individual, then maintaining a stable business with good financial records is essential.
- Leverage Your Relationship with the Bank
If you have an existing savings account, Fixed Deposit, or Home Loan with a bank, they may offer you an instant Personal Loan at a lower interest rate. Always check with your bank for instant loan offers and special discounts for existing customers.
- Consider a Co-Applicant or Guarantor
If you have a low credit score or an unstable income, applying for a Personal Loan with a co-applicant (such as a spouse or parent) can improve your chances of getting a lower interest rate. Similarly, having a guarantor with a good credit history can help you secure better loan terms.
- Opt for a Secured Loan Instead of an Unsecured One
Most Personal Loans are unsecured, meaning you don’t need collateral. However, if you have assets like Fixed Deposits, gold, or property, pledging them as collateral can help you secure a lower interest rate.
- Negotiate with the Bank
Many borrowers don’t realise that they can negotiate the interest rate on a Personal Loan. If you have a good credit score, stable income, or an existing relationship with the bank, don’t hesitate to ask for a lower interest rate.
- Avoid Multiple Loan Applications
Applying for multiple loans within a short period can negatively impact your credit score. Banks see this as a sign of financial distress, which can result in higher interest rates or even rejection of your loan application. Instead, research and apply for a loan with the best possible offer.
Common Mistakes to Avoid When Applying for a Personal Loan
- Not Checking Your Credit Score
Many applicants apply for Personal Loans without reviewing their credit scores. If your score is low, your loan may get rejected, or you may receive a high-interest rate. Always check your credit report before applying and improve your score if necessary.
- Borrowing More Than You Need
A higher loan amount leads to a higher interest burden. Borrow only what you need and can comfortably repay. Avoid taking loans for unnecessary expenses that can strain your finances.
- Ignoring Hidden Charges
Many borrowers focus only on the interest rate for Personal Loans and ignore processing fees, prepayment charges, late payment fees, and other hidden costs. Always read the loan agreement carefully to understand the total cost of borrowing.
- Not Comparing Loan Offers
Different banks offer different interest rates, processing fees, and repayment options. Instead of choosing the first available loan, compare multiple options to find the best deal.
- Choosing a Long Tenure for Lower EMIs
While long tenures may reduce your monthly EMI burden, they increase the total interest paid over the loan term. If possible, choose a shorter tenure to minimise your overall cost.
- Missing EMI Payments
Missing EMIs not only incur penalties but also negatively impact your credit score. Set up automatic payments or reminders to ensure timely repayments.
Conclusion
Securing a low-interest Personal Loan in India requires careful planning and research. By maintaining a high credit score, comparing banks, opting for a shorter tenure, and leveraging festive offers, you can significantly reduce your interest burden. Additionally, avoiding common mistakes like ignoring hidden charges, borrowing more than necessary, and missing EMIs can help you manage your loan efficiently.
