Many of us think of applying for a personal loan if we’re short on funds and need some urgent finances to take care of immediate financial requirements. As such, a personal loan is readily available, and owing to the unsecured nature of the personal loan, it is also quite convenient.
You do not have to worry about providing collateral in exchange for the loan. Some of the factors you have to consider getting the best deal on your loan are your income, credit score, loan amount, the personal loan EMI and the interest rate.
In this blog, let us get an overview of the personal loan interest rate and what are some of the ballpark figures that banks and NBFCs charge as interest for personal loans.
What is Personal Loan Interest Rate?
We know that whenever we take a loan from a lender, the loan is provided only after both parties agree on a specific rate of interest that the borrower must pay. The interest is calculated as a percentage of the total loan amount.
This interest rate ends up being a major portion of the cost of the loan incurred by the borrower. Hence, it is important to understand this aspect of a personal loan.
If the interest charged is high, then the loan may end up being too expensive for you and vice-versa. Hence, you must always negotiate to get a lower interest rate as this will considerably bring down the cost of the loan.
Personal Loan Interest Rate Comparison
In India, banks and NBFCs are the lenders providing personal loans, and they can charge an interest rate of anywhere between 10% to 15% per annum. The personal loan minimum interest rate can be as low as 9% with some lenders.
Do note that this is just an approximation, and depending on the lender, this figure can vary significantly. This is because personal loan interest rates charged by lenders are never fixed but are heavily reliant on other factors like the applicant’s credit score, income, location, loan amount, tenure, etc.
The best thing you can do is negotiate with multiple lenders and see who offers the best interest rate. Never accept the interest rate after the first offer or from the first lender you approach. It is prudent to talk to at least three or four lenders and choose accordingly.
Tips To Get a Personal Loan At the Lowest Interest Rates
Time your personal loan with the festive seasons since this is the time when lenders offer great discounts on loan interest rates in general.
Maintain a credit score of 750 or higher. Personal loans are unsecured loans. Hence, your credit score is a major factor that influences your interest rate. If your credit score is low, then improve it over time and apply for your loan.
If you have an account with a bank or an NBFC, then you may already have a pre-approved loan at lower interest rates.
Similarly, lenders with whom you already have an existing relationship are best poised to provide you with a personal loan at lower interest rates.
Factors Affecting Interest Rates For Personal Loans
Interest rates are calculated based on the cost of the loan to the lender and the credit risk evaluation of the loan applicant. The following factors affect the personal loan interest rates.
Having a credit score of 750 or higher is an excellent way to ensure that you get a low-interest rate. Such a score implies that your past credit history is impeccable. Lenders favour that and are ready to give you a loan at lower interest rates.
The higher income you have, the better the capacity to repay your loan. Hence, the lender will have lower credit risk and might offer the loan at a lower interest rate.
Type of Employment
Your employment type also has a big say in the personal loan interest rate you’re charged. Generally, salaried individuals are charged lower interest rates compared to self-employed persons due to the certainty of income that salaried people have. Employees of the government sector are charged the lowest interest because of their greater job security.
The personal loan interest rate is the biggest factor that can decide the overall cost of your loan. Higher interest means you end up paying through your teeth for the personal loan, with your EMI also ending up on the higher side. So ensure that your interest rate is affordable before you agree to sign the loan contract.