How to get a lower Interest rate on a personal loan

Published: 21 March, 2020 09:53 IST | Partnered Content | Mumbai

Lenders consider an applicant’s CIBIL Information Report (CIR) while deciding on the principal amount, rates of interest, tenors, and EMIs for repayment.

Personal loans have emerged as a viable financial option for individuals to fund various needs such as weddings, medical emergencies, vacations, etc. among others. In a highly competitive credit market, customers always try to opt for the most attractive personal loan interest rates offered by a lender for the least possible repayment liability.

However, availing a personal loan at the most affordable interest rate depends on multiple factors and primarily on the prospective borrower’s eligibility respective to a specific lender.

Fulfilling such eligibility pointers can help an individual successfully apply for a personal loan at the competitive interest rates. In short, that is how to get low interest rates on a personal loan.

Ways to Get Attractive Interest Rates on Personal Loans

Lenders take into account several parameters before approving a personal loan at cost-effective interest rates. Customers can thus benefit from the following pointers while securing a no end-use personal loan at more affordable rates of interest than other applicants –

●High CIBIL score

CIBIL score refers to the creditworthiness of an applicant with respect to the guarantee of loan amount repayment. Lenders consider an applicant’s CIBIL Information Report (CIR) while deciding on the principal amount, rates of interest, tenors, and EMIs for repayment.

Individuals with CIBIL scores of 750 and higher can negotiate with financial institutions to avail affordable rates of interest and suitable tenors on their personal loans. Applicants with higher CIBIL scores have a lower chance of defaulting on the loan amount and interest. NBFCs thus offer low interest rate on personal loan to those applicants in comparison with individuals with lower CIBIL scores.

In addition, lenders focus on impressive CIBIL scores from borrowers because personal loans are unsecured and they do not have the guarantee of assets to fall back on in case of defaulting. Higher CIBIL scores are seen as a guarantee of loan amount repayment.

●Debt-to-income ratio

Debt-to-income ratio suggests the percentage of an individual’s income that is spent on repaying existing debts. Fixed obligation to income ratio (FOIR) is used alternatively for this parameter.

Individuals with FOIR below 50% have an increased chance of availing competitive interest rates on personal loans from financial institutions. NBFCs also consult an applicant’s FOIR to check personal loan eligibility. 

Customers who are already servicing previous loans should opt for better debt repayment management techniques to significantly reduce the debt-to-income ratio while applying for a personal loan. Lenders hesitate to approve loans for individuals who already have to allocate a major portion of their monthly incomes towards the repayment of existing loans.

●Consistent employment history

NBFCs approve personal loans to salaried individuals who have a stable employment history in the course of their career. Individuals with a fixed source of income can also plan their repayment schedule effectively.

An individual with a fluctuating employment history implies a disrupted income accumulation in the future. Lenders perceive these individuals as high-risk customers, and thus impose higher personal loan interest rates to ensure interest income in a shorter span. 

Applicants should consult with lenders on how much personal loan they can get on their salary to plan their finances effectively.

Applicants can avail online personal loan from a host of lenders at cost-effective rates of interest and benefit from quick disbursals.

Various NBFCs like Bajaj Finserv offer personal loans up to Rs.25 lakh with minimum documentation online and no hidden charges. This financial institution also makes availing loans a hassle-free process with pre-approved offers on personal loans as well as on other financial products including business loans, home loans, credit cards, etc. You can check your pre-approved offer by providing your name and phone number. 

Applicants can avail attractive personal loan interest rates by considering the financial techniques mentioned above. A low debt-to-income ratio and a consistent employment history automatically increase the chance of a personal loan approval. 

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