In India, obtaining a personal loanis at your fingertips, thanks to the digitalised solution offered by numerous financial institutions. With only a few papers and without visiting the lender's office, you can get immediate approval. But is quick disbursement the sole factor to consider? The answer is no. Interest rates also matter. You must find ways to get a personal loan with a low-interest rate. Here are the top methods that can assist you in getting an affordable personal loan.
1. Know your purpose
Usually, in a personal loan, lenders do not place any limits on how you can use the money. But this does not rule out the possibility that they are curious about the purpose. You will likely need to explain why you are requesting a loan. The lender analyses the credit risk and determines the interest rate based on the goal. For example, if you require funds to cover your fundamental needs, you may be charged a hefty interest rate. This is because it gives the lender the impression that you will have trouble repaying your dues as your monthly income is insufficient to cover basic needs.
2. Choose your lender carefully
Every lender is different. The risk assessment method, interest rate, and loan features slightly differ from one another. Furthermore, the advancement in technology has increased the popularity of digital lending platforms. Hence, you need to conduct a thorough comparison to decide on the ideal lender. You can take the help of a loan aggregator's website. This can assist in providing a comprehensive overview of each lender's product features and offers on a single page. If you are going for a digital platform, don't forget to factor in the Goods and Services Tax (GST). Apart from that, the mode of application also impacts the interest rate. Offline methods allow you to negotiate more effectively,whereas online ways boost your chances of acquiring a personal loan with a low-interest rate by eliminating middlemen (loan brokers).
3. Maintain healthy credit history
Your credit history is vital not just for personal loans but also for other types of financing. The lender carefully analyses your previous repayment records, number of existing debts, and loan defaults. If you are a loan defaulter or have a history of missing repayment deadlines, your loan application will likely be rejected. Even if your loan application is not rejected, be prepared for a high-interest personal loan. In this instance, the best thing you can do is clean up any previous loan defaults. You should also aim to be diligent when it comes to paying your dues on time. After putting these steps in place, wait for a few months before applying for a loan.
4. Maintain a healthy credit score
Your credit score and credit history are interrelated. If the latter is strong, the former will eventually be in a better position. Even if you have a good credit history, your credit score can still be low in some situations. One of these situations can becaused due to disparity in the information updated with credit bureaus. This happens when your previous lender fails to send your loan closure report to the credit reporting agency. You must tell your former lender of the issue immediately and urge them to correct their mistake. Most lenders prefer a CIBIL score of 750 or above to approve a personal loan with a low-interest rate.
5. Decide on the amount you need
The loan amount is another vital factor determining the personal loan interest rate. The higher the sum, the greater the risk involved in lending. As such, you must first examine your requirements. Determine how much money you will need to meet your needs. One of the most common blunders made by most borrowers is applying for the maximum amount of credit they are qualified for. Never commit this common mistake. Maintain a credit utilisation limit of less than 30% if possible. Even if you have a pre-qualified loan offer, you should check your utilisation ratio regularly.
6. Review personal loan eligibility criteria
Interest rates are also reliant on the lender's qualifying criteria. However, matching the minimum criteria only helps you acquire loan approval, not a low-interest loan. For affordable personal loans, you must meet the high-level pre-requisites. This shows that you will have no trouble repaying your debt.
The personal loan eligibility criteria with most lenders are outlined below.
7. Show additional source of income
A lender evaluates your monthly income based on two primary considerations. The first is whether you can afford to pay your EMI on time. The other is to figure out how much disposable income you will have after you have paid off your monthly dues. The lender might charge you a high-interest rate if your primary income is found to be unsatisfactory.
Considering this, make sure to indicate any additional sources of income on your loan application. Income from rent, part-time business, and trading might work here.
8. Opt for shorter tenure
Personal loans usually have a maximum repayment period of 60 months. It is always feasible to choose a shorter term if your budget permits it. Shorter terms will not only qualify you for a low-interest personal loan, but they will also save you money on interest.
9. Avoid multiple loan applications
When you apply for a personal loan with numerous lenders simultaneously, be ready to pay a higher interest rate. This is because it gives the impression to the lender that you are a hungry borrower.
10. Build your credit history
First-time borrowers usually face difficulty in acquiring a personal loan. If you are approved for a loan as a first-time applicant, the lender may charge you a high-interest rate. As such, you must first apply for a short-term consumer durable loan to overcome this situation. Consider financing a new smartphone, and if approved, make timely EMI payments. It will help you in building your credit history while also allowing you to qualify for a low-interest loan.
11. Balance transfer
Only if you have taken out a personal loanfrom any lender will you be able to transfer your balance. If you are diligent with your current loan payments, the other lender may offer you the opportunity to transfer your outstanding debts to them at a reasonable interest rate.
If you can demonstrate your repayment capability, the lender will have no problem approving you for a low-interest personal loan. Now that you know how to receive a low-interest personal loan, you can check out the Poonawalla Fincorp website to apply for one.
How magical was the day when you discovered your career path? After a lot of research, putting in so much hard work, late nights, your heart and soul, you have become what you are today.