Owing to the increasing gap between income and expenses in the current market scenario, the popularity of collateral-free personal loans is on the rise. As RBI stated, the credit outstanding for the personal loan segment has increased by 12.1% to Rs. 29.18 lakh crore till September 2021.
Keeping the country’s macroeconomic situation in mind, RBI has decided to maintain the status quo on key rates yet again. With the current repo rate remaining at 4%, borrowers can still avail low interest personal loans. However, rather than depending on such occasional provisions, one should learn about the factors that affect these rates.
Aspects Influencing Personal Loan Interest Rates
Because of its unsecured nature, quick processing feature, and restriction-free usage facility, personal loans get the first preference during financial emergencies. Since there are no constraints on end-use, borrowers often obtain a large sum to tackle a monetary crunch.
This is why it becomes essential to find lenders offering the lowest interest rates so that your monthly obligations do not hamper your overall financial planning. Even if you are availing of a small personal loan, knowing about the following factors affecting these rates is necessary.
- Credit profile
In the case of such collateral-free loans, financial institutions assess certain aspects to eliminate the risk of repayment default. These vital aspects also include applicants’ credit profile which consists of the following elements.
- CIBIL score
This three-digit number reflects a borrower’s repayment capacity, and based on that, lenders decide how much they will receive as a loan amount. Ideally, the credit score should be 750 or above to get prompt approval and near 900 to get the lowest interest rate for personal loans. Additionally, hassle-free documentation process, high loan amount, etc., are some reasons why CIBIL score is extremely important for personal lending.
- Repayment track record
As the credit score, applicants’ repayment history is another parameter lenders go through after getting a loan application. Lenders will find everything here, from missed or delayed payment reports to loan default history and offer interest rates accordingly.
It is essential to have a decent repayment track record for getting affordable interest rates on instant personal loans.
Fixed obligation to income ratio (FOIR) reflects a borrower’s disposable income and his/her capacity to repay loans. Lenders generally prefer this ratio to range between 40% and 50%. Note that the lower the FOIR, the higher the chances of getting low-interest personal loan approval.
Borrowers, who have been consistent with EMI payments, will inevitably have a clean credit profile. Thus, getting affordable interest rates will be easier. Remember, besides the interest rate, one should choose the repayment tenor wisely as that helps in planning the overall personal loan EMI repayment better.
- Employer reputation
Lending institutions also check if the applicant is working for a trusted company, has job stability, and has adequate monthly income to repay the Personal loan Online. Once all these parameters are met, it is more likely that the borrower will not default on payments and will get a personal loan easily.
Make sure to discuss this pointer with your preferred lender before submitting the application, as financiers often provide flexible lending policies to individuals working with specific organisations.
- Loan amount and tenor
A substantial loan amount poses a higher lending risk. Thus, to get a low-interest personal loan, individuals need to assess the exact credit requirement. It will eliminate the chances of over-borrowing.
Similarly, the total interest payable also depends on the loan tenor. For instance, a longer tenor attracts higher interest payable and vice-versa.
- Having good terms with financiers
A loyal customer of a particular financier will be provided with a lower interest rate.
However, if you are a new customer and wonder how to get a personal loan with low-interest rates, check lender-specific eligibility criteria beforehand.
Eligible applicants also get other benefits and pre-approved offers from leading financial institutions and NBFCs like Bajaj Finserv. These offers are available on various financial products such as personal loans, credit cards, business loans, etc. To expedite and simplify loan processing, consider checking your pre-approved offer before submitting the application.If you are looking for a low-interest personal loan amidst a financial crisis, make sure to meet these parameters first. Additionally, to keep yourself prepared, check how the personal loan disbursal process works, including associated fees and charges.