Banks and Non-Banking Financial Companies (NBFCs) offer personal loans for a variety of purposes. You could take a personal loan for renovating your home, funding a vacation or simply to meet a financial emergency. It is easy to apply for and avail a personal loan. There is minimum documentation involved and you don’t have to pledge an asset as collateral, as it is with most other loans.
There’s one important element worth considering when taking a personal loan—the interest rate. The personal loan interest rate is one of the main costs you’ll have to incur. The higher the interest rate, the more will be the amount to repay.
However, the good news is that these personal loan rates can be negotiated to an extent. Banks and NBFCs offer variable interest rates that differ from person to person. Your personal loan interest rate is calculated based on factors such as your credit history, monthly income, the amount being borrowed, and others.
Getting a personal loan to aid your financial situation is easy but scoring a low-interest personal loan will further benefit your financial health.
So, if you’re seeking a personal loan, here are a few factors worth considering to get a lower interest on the loan.
Maintain a good CIBIL score
Your CIBIL score is one of the most important things that will influence your loan application. It is determined by your credit history. Taking credit and paying back on time will help boost your CIBIL score. If you have a good credit score, your lender will see you as a low-risk borrower and be more generous to you. Ideally, a CIBIL score more than 700 is good to enhance not only your eligibility for personal loan but also the interest rate you’ll be offered.
Have a stable monthly income
Personal loans are unsecured loans, where no collateral is provided. In such a case, having a stable monthly income gives the lender a certain assurance that you’ll be able to repay the loan. People with higher income and job stability are considered as low-risk borrowers because there’s a higher likelihood of them repaying their monthly EMIs. If the lender is confident about you as a borrower, you’re more likely to be offered a lower interest rate. However, to score better on the personal loan eligibility calculator, you will have to prove that you have a stable income from a steady job. Job-hopping is seen as a red flag when it comes to approving loans.
Offer a collateral
Personal loans are unsecured loans where you don’t need to pledge any asset to avail them. However, you have the option to offer a collateral such as your house or any fixed capital in your name when you apply for a unsecured loan. This reduces the risk involved for the lender and will increase your chances of getting a low interest rate on the personal loan.
Have a healthy relationship with the lender
You are more likely to get a better interest rate if you have a good relationship with your lender. For instance, if you’ve taken a loan from a particular bank or financial institution before and repaid it back on time, you’ve already gained their trust. Your lender already sees you as a loyal and trustful borrower and will be ready to offer you a low-interest personal loan if you bargain for it.
These factors influence your reputation as a trusted borrower and thus helps you get lower interest rates when applying for a personal loan.