Research shows that the personal loan sector acquired a substantial growth with around 11.2% increase, as of July 2020. The convenient offers and schemes offered by top financial institutions come as a big help for individuals struggling with a financial crisis.
To help borrowers handle monthly instalments and other liabilities altogether, lenders have kept the current personal loan interest rates relatively moderate. However, before availing a personal loan, it is required to have a complete idea regarding how these rates are calculated, what affects these rates.
Following are 5 essential aspects of personal loan interest rates individuals should know.
- Types of personal loan interest rates
There are two types of interest rates – fixed interest rate and floating interest rate. While the first one remains constant for the entire loan tenure, the latter keeps changing depending on the market condition.
- Determining factors of personal loan rates
To avoid the possibility of unbearable monthly instalments, individuals should be aware of the factors that affect their personal loan interest rate.
- An individual’s credit score should be 750 or above to secure moderate interest rates. Those with a low CIBIL score and repayment track record must improve personal loan eligibility by taking necessary actions, including paying the EMIs on time.
- It is wise to avoid applying for multiple personal loans with different financial institutions. This impacts the credit score and lowers chances of getting attractive interest rates.
- When opting for an unsecured personal loan, lenders usually decide the interest rate depending on an applicant’s income details. Therefore, it is necessary to have a steady job or income source to get approval.
- The credit utilisation ratio plays an equally important role in impacting interest rates. This ratio should not exceed 30% as it signifies your higher repayment capability.
- Interest rate calculation methods
There are two ways the current personal loan interest rate can be calculated.
- Flat rate: This particular method implies that the interest rate decided by the lender at the beginning of the loan tenure will remain intact throughout. The interest rate will be the same and calculated on the principal amount only.
- Reducing balance method: Under this method, interest is calculated on the diminishing principal balance, making the repayment process much more manageable.
- Tips to get a low-interest rate on a personal loan
Before applying for the personal loan, make sure to check the necessary details that are required before the application. Here are some other tips you can use to get moderate interest rates.
- Working for a reputed organisation helps to get lower interest rates as it establishes the borrower’s credibility.
- Consider opting for the same financial institution you have dealt with before since the track record and good relationship help secure affordable deals.
- Maintain a high CIBIL score that signifies your creditworthiness. You can also use a personal loan eligibility calculator to check if you meet all the eligibility parameters.
- Latest offers on interest rates
Top financial institutions like Bajaj Finserv provide several schemes, and pre-approved offers to make financing hassle-free. These offers are available on several financial products like personal loans, business loans, etc. By opting for them, you not only secure reasonable rates of interest but also ensure faster availability. You can quickly check your pre-approved offer by submitting necessary details like name and contact number.
Alongside the aforesaid aspects, you shall also compare different lenders and the current personal loan interest rates they are levying to make the most of this financing option.