Personal loans can be helpful financial tools if used wisely, but they also come with costs and fees. Loans are important financial instruments to help you start your entrepreneurial ventures. But finding the right loan can be tough if you don’t know what to look for. Picking the wrong loan can leave you with high interest rates and late fees, putting pressure on your finances and making it hard to pay off your loans on time. The next time you need to take out a loan, pay close attention to the following guide that covers all of the important details about personal loans, including how they can vary between lenders, factors that affect personal loan interest rates, and the differences in rates between variable and fixed loans.
What is a personal loan?
An unsecured loan is one that you get without any collateral; a personal loan does not need any security. If you need money for any reason and don’t want to take out a mortgage on your home or use your car as collateral, then this type of loan is for you. A personal loan can be used for anything from paying off bills to buying a car to renovating your home—and anything in between.
Current Interest rates in India
|Personal loan Interest rate range
|State Bank of India
|Nil to 1.5%
|10.3% to 13.6%
|6 to 72 months
|Bank of Baroda
|1% to 2%
|10.2% to 17.55%
|4- 6 Years
|Punjab National Bank
|10.8% to 15.85%
|Up to 6 years
|Bank of India
|Nil to 0.5%
|9.75% to 14.75%
|3 to 5 years
|Bank of Maharashtra
|10.20% to 14.7%
|Up to 84 months
Factors that Affect Personal Loan Interest Rates
A personal loan is often seen as one of the best ways to get access to money quickly and easily. The process can be quick and easy, but you must know what you’re signing up for before making a decision. Below are some of the factors that affect personal loan interest rates to help you make an informed decision when applying for one.
- Income level: If your income is higher, you can get a personal loan at a low interest rate
- Poor CIBIL score
- Missing repayments
- The demand for personal loans
- Relationship with the loan provider
- Employment nature (salaried or self-employed)
Tips to get a personal loan at a low interest rate
There are many ways to get a personal loan at a low interest rate, including:
Good CIBIL score: A good credit score tells potential lenders you can be trusted. As a result, banks offer low-interest loans to applicants with high credit scores. So check your credit score before applying for a personal loan. There are higher chances of being given a loan with a low interest rate if your credit score is 750 or higher.
Payments on time: Your credit score may be negatively affected if you fail to pay a loan or credit card bill. Before deciding your personal loan interest rate, lenders will consider your repayment history. Interest rates tend to be lower for people who have paid their past EMIs and credit card bills on time.
Check out the offer: Most banks offer reduced interest rates for loans during festivals and the holiday season. Apply for a loan now, and you’ll be rewarded with a discounted rate.
Negotiate Interest rate: The interest rate can be negotiated if you are an existing customer of the bank or have a good relationship with the loan provider.
Interest rate comparison: To ensure you find the right personal loan at a reasonable interest rate, compare personal loan interest rates for various banks and NBFCs before applying for one.
Fixed interest rates vs. floating interest rates
Fixed interest rate:
- According to market fluctuations, interest rates can fluctuate.
- If you prepay your loan, you may incur a prepayment charge.
- Not linked to MCLR.
Floating interest rate:
- Your EMI payable will likely change during the repayment period.
- If you prepay your loan, you may not be charged a prepayment fee.
- Linked to MCLR.
Choosing a fixed interest rate has the advantage of letting you know exactly what you will be charged. So, you can plan your finances and expenses based on your personal loan interest rates.
If the interest rate is low, you can reduce your repayment by opting for a variable rate.
Which type of personal loan is best for you?
A lender can offer you a monthly or annual reducing balance rate.
Monthly reducing balances apply the interest rate to the balance left after each EMI payment, whereas annual reducing balances apply to the principal outstanding each year. The reducing balance method is better than the flat rate if you want to reduce interest obligations. Choose a monthly reducing balance if you have the option to save more interest.
The question you can ask while getting a personal loan
Ask yourself some important questions before applying for a loan. That includes:
- What are the interest rates?
- What are the processing fee and pre-closure charges?
- How is customer service?
- What are eligibility requirements and loan disbursal times?
- Are there any current promotions?
- Is there any origination or other fees?
- What are the loan terms and repayment periods?
- How much can I borrow, and what is my credit limit?
In conclusion, we can say getting a personal loan on good interest rate is very important. So many factors go into your loan interest rate, including your credit score, other charges, what a good interest rate is, and the type of loan you’re applying for. In this blog post, we looked at some of the most important factors when it comes to personal loans. If you’re considering getting one, use this information to make sure you have all the information possible before making any decisions. Also, you can visit Piramal Finance to get a personal loan with a good interest rate and contact them for further details.