You can take out a personal loan without any restrictions on how you can use the money. It is an unsecured loan, which means that you do not need an asset as collateral. Such loans are risky for NBFCs and banks since they lack the safety of a pledged asset. So, banks have added many internal standards that a person must meet before their personal loan application is accepted.
Personal loans are often used in times of urgency, such as for urgent medical bills or education costs. Personal loan interest rates at top banks normally start at 10.49% per year. Some public-sector banks may offer loans at cheaper interest rates. The personal loan rate of interest is set by the applicant’s credit score, monthly salary, and other factors.
To pick the finest and most fair personal loan interest deal, check and compare the rates offered by several lenders.
What is a personal loan interest rate?
The interest rate is charged on the principal loan amount. In addition to each planned payment, you pay an agreed-upon sum that counts as interest. As a result, the monthly payment is split into two parts: interest and balance repayment. As the loan balance decreases, so does the interest rate.
Types of Interest Rates on Personal Loans
Lenders charge two types of personal loan interest:
- Fixed Rate: The fixed rate of interest is set for the term of the loan. The benefit of a fixed personal loan interest rate is that you can plan your finances without worrying about market rate swings.
- Floating Rate: Floating rates, in contrast, may alter at any moment. They are managed by the government’s policy rates and may change for many reasons. The personal loan interest rate might rise or fall, which in turn raises or lowers the EMI amount. The benefit of a floating-rate loan is that it is 2-3% less costly than a fixed-rate loan. Also, when the rates fall, you can save a lot.
Factors Influencing Personal Loan Interest
Lenders set interest rates based on their funding costs and their clients’ credit risks. Here are a few crucial factors that can affect your personal loan rate of interest:
- Credit ScoreLow personal loan interest rates are given to people with better credit ratings. As a result, you should maintain your credit score at or above 750. Better fiscal habits, such as paying credit card debts and EMIs on time, can help you keep your credit score high.
- IncomeA higher salary indicates a greater ability to repay debt. This reduces the bank’s credit risk. As a result, many banks give reduced personal loan interest rates to persons with stable and high incomes.
- EmployerMany banks base their personal loan rates on the professional histories of their clients. Salaried people often pay lower rates of interest than self-employed people because their salary is more stable.
- Also, because of their guaranteed job safety and more stable income, government and PSU staff pay lower rates. MNCs and famous private sector firms are more robust to fiscal declines than other private sector firms. So, people working with them also enjoy lower rates.
- Link with the BankMany banks give low personal loan interest rates to users with an existing relationship with the bank. People who want personal loans must first talk to banks with whom they have a good history.
What Does It Mean To Lower Personal Loan Interest?
If you take out a fixed-rate personal loan, the interest is based on the whole loan sum over the whole loan tenure. On the other hand, when you get a loan with an interest rate that goes down, you only pay interest on the amount you still owe. So, when you make a monthly payment, the interest is calculated on the pending principal amount.
There are a few more factors to check when looking for low personal loan interest:
- Processing FeeLenders demand a one-time processing fee, which may affect the interest rate. If you are given a low rate of interest, you should check if there are any processing fees imposed by your lender.
- Pre-Closure CostsSome banks charge pre-closure fees if you settle the pending loan sum before the end of the loan tenure. You must check if such charges are levied by your lender before applying with them.
- Criteria for eligibilityAlthough the lender may provide low personal loan interest rates, you should check if the rates match the bank’s eligibility rules. You need to make sure that your salary is within the range given and that you are old enough.
- DiscountsAlthough the lender may have fixed a high personal loan interest rate, you can try to get a lower rate. Lenders often offer rebates to long-term and steady clients.
A personal loan is an unsecured loan that you may put to many uses, such as buying an expensive gadget or managing your small business. Since personal loans are more popular than all other types of loans, they are simple to apply for. Moreover, with online applications, you can receive a personal loan interest rate estimate from anywhere.
Piramal Finance helps people get low personal loan interest rates. Give the blogs a read and check out the financial services they offer.