- How can a personal loan come at a lower interest rate?
- A high income, good credit score can help ensure the same
Sometimes we don’t have enough financial resources to meet our instant needs. That’s why we have to rely on a personal loan that can be given for various purposes such as marriage, education, medical emergency, etc. As it is an unsecured loan, you don’t need to provide any collateral or security. But interest rates can be higher and increase your monthly EMI obligations. This ultimately results in substantial interest payments from your side. To ensure the payment obligations are on the lower side, it is imperative you get the loan at a lower rate of interest. But how will you get the same? Well, there are factors based on which lenders decide on the interest rate. These include your age, income, repayment potential, credit score, etc. Let’s read about these factors in this post.
How does a credit score help me get a lower interest rate?
A credit score is a numerical representation of your credit history, and based on that, the lender decides on the interest rate of the loan. The credit score ranges from 300 to 900 in India. So, if you’ve a credit score above 750, chances of obtaining the personal loan at a lower rate are maximum. As the score is high, it means your repayment history is good. This will convince the lender to offer a lower rate of interest.
Stable Job & Regular Income
If you are working in a reputed company or organization, there are higher chances to get instant loan approval with a lower rate of interest. Do you know why is it so? Because working in such organizations creates an impression that you will get your salary on time. So, one could expect a regular flow of income compared to someone working in a very small-sized firm. And if your overall employment summary shows stability, the lower rates are not far away from your grasp!
Strong Repayment Potential Also Helps Reduce the Interest Rate
A strong repayment potential is greatly dependent on what you earn and spend. A greater income with reduced expenses will give you more room for repayment compared to someone earning lesser and higher expenses.
How Much is the Personal Loan Interest Rate Now?
The interest rate on a personal loan can be anywhere between 10.50%-25% per annum across banks in India. As you’ve learned the factors that can help you get a lower rate of interest, do put them into use when you apply for a loan.
Check the Interest Payment Method
If you are successful in getting a lower interest rate on your loan, double-check it because, in the end, you are about to pay high interest. Do you know how? Because if the interest is calculated on a flat rate of interest you are about to pay fixed interest over the tenure, which automatically increases your EMI. Whereas if the interest rate is calculated on your loan as per the reducing balance rate of interest, your EMI reduces the principal with every payment. And the total interest payable is comparatively lower.