Personal loans are easier to get as they are unsecured loans and no collateral securities are needed to avail such a loan. However, without any underlying securities, interest rates on personal loans are much higher than that of secured loans – like home loans, gold loans etc.
“Personal loans are unsecured loans that can be used for any purpose that the customer chooses such as urgent purchases, wedding expenses, house renovations, or any other financial needs that have to be fulfilled. In order to avail of a personal loan at a lower interest, the most commonly recommended advice is that one should always keep their credit score healthy, i.e., above 700 or 750. When applying for this type of loan product, some details such as credit history to identify whether the borrower has repaid previous loans on time, income statements to check repaying capability, and a few other relevant documents such as social security numbers, state-issued IDs, etc. are collected,” said Anuj Kacker, Co-Founder, FREO.
To get some relief on interest rate, what you have to do is to maintain a healthy credit score.
“A good credit score is useful in securing desired repayment tenure. Good repayment history of their EMIs also helps consumers to negotiate a better rate of interest on the personal loan. The consumer should always look out for different offers provided by various lenders and should be able to watch out for changes that are announced in terms of rates of interest, charges on loans, and any hidden charges so that they can make the optimum decision in the quickest time for the best rate. A good employment history helps in enhancing the eligibility for securing a personal loan. Additionally, the consumer should always be aware of how the interest is calculated and the terms of the loan so they aren’t surprised. Consumers can also avoid approaching multiple lenders as it affects their credit score and reduces the chances of securing better interest rates,” said Kacker.
According to Pranjal Kamra, CEO of Finology, in order to avail of personal loans at the lowest interest rates, one should:
1. Maintain a good credit score: Your credit score depicts your ability to pay the loan on time. The better the credit score, the easier it will be for you to avail yourself of a loan. The lenders decide the interest rate, loan amount and other terms related to the disbursement of the loan so, in order to avail of a personal loan at the lowest possible interest rate, one must maintain a high credit score.
2. Apply for a secured loan: Non-collateral loans charge a higher interest rate due to lack of some security and therefore one must apply for a collateralised loan.
3. Apply from the bank instead of NBFCs: NBFC’s or private lenders charge a higher interest rate and the amount disbursed is of small ticket size. Therefore one must apply from a bank to enjoy a lower interest rate.
4. Inspect the interest rate for various loan tenure: Lenders offer different interest rates for different terms. For instance, for a longer tenure, the interest rate will mostly be higher.
5. One must also avoid multiple loan applications: Too many loan applications with different lenders will plunge your credit score and this might hurt your chances of getting a personal loan at a lower interest rate. Try to keep your CIBIL score above 700 for the above matters.
Although personal loans are easier to get, getting one hurriedly may get you trapped.
“In this fintech led environment, lowest interest rate is a relative measure and has moved from the today’s deal of the local moneylender to the APR of the mainstream online loan from a new age fintech. Although fintechs offer a great methodology to get a loan discreetly and without stepping out or standing in line, it is important to understand all costs associated with the loan before they sign the dotted line. Borrowers can use any of the numerous free APR calculators online to understand the cost and compare between products and companies,” said Anil Pinapala, Founder and CEO of Vivifi India Finance.