Are you thinking about applying for a loan? Then one thing that you must absolutely know about is the interest rate on your loan. There are different types of loans in the Indian market offered by different financial institutions. The most common are home loans, car loans, two-wheeler loans, gold loans, business loans, and personal loans. Each of these loan products comes with different features and different interest rates. A personal loan is an unsecured loan which means you do not have to put your assets as collateral or guarantee against the loan. As such, it is categorized as a high-risk loan and the interest rate levied on such a loan is comparatively higher.
However, different financial institutions in India offer personal loan products at different interest rates. The rate offered depends on several factors that include – your credit score, your monthly salary, the company you work for, the city you live in, etc. Hence, it is important to understand all about Indian lenders’ personal loan rates of interest, so that you can get the best deal on your loan.
What is interest on a personal loan?
When you apply for a loan from a lender, they are essentially giving you their money on rent. The lenders expect you to pay them a monthly rent on the capital, this is called ‘interest’. In addition to this interest, you are also obliged to pay them the capital money that you borrowed. The rent or interest that you pay to your lender is levied as a percentage of the money you borrow. It is adjusted in the EMI that you pay back to the lender.
How does interest rate impact your loan repayment?
The interest rate has a direct impact on your loan repayment. When you take an instant loan online, you must always check the interest rate that is being charged by your lender. The higher the interest rate, the higher will be your repayment amount and the longer it will take for you to pay it back. Therefore, it is very important to ensure that you take a loan with an interest rate that remains within your means. You can compare the interest rates offered by different lenders online before choosing your preferred lender. You can also negotiate with the lender to offer you a better interest rate, if you have a good credit score and stable income.
Tips to keep your personal loan interest rate low
- Maintain a stellar credit score: Your credit score is the most important factor which a lender will consider when they come across your loan application. People with higher credit scores are generally considered to be low-risk borrowers who return their loans on time. Every lender wants to do business with such people because they know that they will get back their money in time and in full. To maintain a high credit score, you must pay all your EMIs on time and never let a loan go into default. Similarly, you should borrow conservatively and never exhaust your credit limit.
- Borrow from an instant loan app: Conventional lending institutions have been the go-to option for most people until very recently. The problem with conventional lenders is that they have very high costs of doing business. Conventional lending institutions have their physical offices in multiple places. They also hire an army of staff to run these offices. This automatically shoots up their operational costs. With instant personal loan apps, the operational costs are very less. Therefore, they can offer much lower interest rates and processing fees.
- Explore special offers from lenders: In many cases, different lenders run different product campaigns through different channels. One key example of this is that they will offer different interest rates on loans that are applied through different channels. A loan that originates from an office or through a third-party direct sales associate or tele caller will be offered at much higher interest rates than that of an instant loan online application. This is because many times lenders come up with special offers only for borrowers who approach them directly. You can also get a good offer on your loan if you apply for it during the festive period.
- Try adjusting your loan amount or premium: This is one factor that is very effective for people who are looking to borrow through an app. Many times, the lenders will set different rates of interest depending upon the amount and duration of the loan that you have applied for. For example, loans of longer duration will generally carry a higher rate of interest. Use the app to adjust the amount or duration of your instant personal loan. Who knows you might be standing on the precipice of a great deal and by adjusting either or both you might get a good deal.
- Do comparison shopping for loans: Now this may not seem like an obvious choice but with instant loans online, it is actually very easy to do comparison shopping. You can install apps from different lenders to see who is offering the best deal. Any lender who offers a really high-interest rate can be easily ruled out. If multiple instant loan apps offer the same or similar interest rates, you can compare other terms and conditions, like processing fees, pre-closure charges, etc. If the picture is still unclear, check the background of the lender and choose a lender that has the backing of a well know business institution!
It is very important that you do hard negotiation with the lender for the lowest possible rate of interest. Do not sign the loan until you are completely satisfied that you have done your absolute best to get the lowest possible rate of interest on your loan.