The interest rate plays a crucial role when taking a personal loan, as it affects both the total cost of the loan and the amount you need to repay.
Several factors like loan amount, repayment tenure, credit score, and employment status influence the interest rates offered.
In this article, we’ll share tips to help you secure a personal loan with a lower interest rate.
What is a Personal Loan Interest Rate?
The interest rate on a personal loan is the percentage of the total loan amount that lenders charge for borrowing.
This rate can vary based on factors like your credit score, income, loan amount, and loan tenure.
A lower interest rate means you’ll pay less in total, while a higher interest rate increases the overall repayment amount. Currently, personal loan interest rates range from about 10% to 24% per year.
Factors Affecting Personal Loan Interest Rates
Credit Score:
Lenders use your credit score to evaluate your ability to repay the loan. A higher credit score suggests lower risk, making you eligible for a lower interest rate.
Here’s how credit scores affect interest rates:
High Credit Score (750 and above): Likely to receive the best interest rates.
Moderate Credit Score (650 to 749): You may get a better interest rate, though not the lowest.
Low Credit Score (below 650): Your loan may be rejected, or you may face higher interest rates.
Income and Employment Status:
Lenders assess your income and job stability when determining interest rates.
A steady income and long employment history indicate reliable repayment ability, which may result in a lower interest rate.
Salaried Employees: Those with fixed salaries generally qualify for better rates and fewer documents.
Self-Employed: Self-employed individuals may face higher interest rates due to perceived instability.
Loan Amount and Tenure:
The amount you borrow and the repayment period also influence your interest rate. Longer loan tenures often come with higher interest rates, while shorter tenures can result in lower rates.Relationship with the Lender:
Banks and financial institutions may offer lower interest rates to existing customers with a good repayment history.
How to Get the Lowest Personal Loan Interest Rate
Maintain a High Credit Score: To improve your credit score, make sure to pay bills and loan EMIs on time, and regularly check your credit score.
Compare Interest Rates: Use platforms like Moneycontrol to compare interest rates from different lenders. This will help you choose the best deal.
With digital platforms like Moneycontrol, you can access instant personal loans up to ₹50 lakh from leading lenders, with interest rates starting at 10.5% per annum.
The process is fully digital, and once approved, the loan amount is transferred directly to your bank account.
