A personal loan requires minimum documentation and doesn’t require any collateral or security to apply for the loan. In fact, as a borrower, if you choose to take a personal loan, you have the freedom to use this loan amount for meeting any of your legitimate financial needs. For instance, you can use this loan amount for your child’s education expenses, finance your daughter’s wedding, or even buy a PlayStation.
Almost every financial institution today offers personal loans. However, the interest rate of personal loan is different for every lender. Different financial institutions offer personal loans at competitive rates, requiring very basic eligibility criteria.
The interest rate of a personal loan depends on certain factors. If you sincerely consider these factors, you can easily avail yourself of an affordable personal loan. Here are 5 smart ways to get a cheap personal loan:
Work on your CIBIL Score
CIBIL score is also known as credit score. Your credit score represents a statement that contains all details about your repayment history. Whatever actions you perform with your credit cards and repayments of loans are considered. Every time you make a timely payment against any of your taken loans, it adds to your credit score. On the other hand, your score gets deducted every time you make a late payment.
Your credit score varies between 300 to 900, and a good score in the eyes of most lenders is 750 or more. Hence, if you have a satisfactory credit score, financial institutions will offer you a cheaper personal loan interest rate.
Employment Status
Your employment status matters when applying for a personal loan, irrespective of who your lender is. If you work at a reputed firm, getting a low interest rate on a personal loan is high. Most banks and NBFCs have a list of reputed companies, so if your employer falls on that list, you avail of a loan at a cheaper rate. Additionally, if you have a stable monthly income, your chosen lender will likely give you a cheap personal loan.
Your income level and the interest rate that your lender gives you are inversely related to one another. For instance, if you’re monthly income is Rs. 50,000 or higher, your interest rate will be lower than a borrower with Rs. 20,000 monthly income.
Consistent Banking Transactions
You could prove to be a loyal customer by taking a loan from the same bank where you have your savings and fixed deposit accounts. As an old customer who shares a good relationship with their bank, you could get some added benefits. For example, your bank might reward you by charging a lower rate of interest on a personal loan for this loyalty.
Debt-to-income Ratio
Debt-to-income ratio is also commonly known as DTI. It is one of the elements that lenders use to determine how well you will be able to manage your monthly debts. DTI also ascertains if you have the potential to repay the loaned amount. An ideal DTI ranges from 21% to 35%.
The debt-to-income ratio and the interest rate of personal loans directly depend on one another. Therefore, your chances of getting a lower interest rate will be higher if you have a lower DTI and vice versa.
Types of Personal Loan
The type of personal loan you choose also plays a vital role in determining if you will get a cheap personal loan or not. There are several financial institutions offering different types of personal loans. These include travel, wedding, education, home renovation, and festival loans. Some other types consist of pension loans, consumer durables loans, medical loans, agriculture loans, and computer & mobile phone loans. Each of these loans comes with a different rate of interest. So compare the interest rates before choosing either.
Personal loans come with a higher rate of interest compared to secured loans. Nonetheless, several factors on both the lender and the borrowers’ side can impact the interest rate of personal loan. The above-mentioned ways can help you get one of the best deals on personal loans.
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