The interest rate on your personal loan can significantly affect the total cost of borrowing. Even a slight increase in these rates can lead to higher EMIs as well as interest cost. Hence, prospective borrowers must try to avail personal loans at the lowest rates possible and for that; they can follow a few tips given as below:
Banks and NBFCs are increasingly factoring in their applicants’ credit scores while fixing their personal loan interest rates. They give lower personal loan interest rates to applicants having credit scores of 750 and above because such applicants demonstrate lower credit risk. Applicants having scores below 750, on the other hand, are generally considered to lack financial discipline, which in turn increases credit risk for the lenders. Thus, lenders try to compensate for the higher credit risk by levying higher personal loan interest rates. Thus, those planning to avail personal loans at the best interest rates should regularly check their credit scores and if found low should take necessary measures to improve it.
Banks and NBFCs usually offer personal loans at preferential interest rates to their existing customers. Hence, applicants looking for best interest rates on personal loans should first check with the banks and NBFCs with whom they have existing banking and lending relationship. Applicants can use the interest rates and personal loan features offered by them as a benchmark for comparing personal loan offers from other banks and NBFCs.
Banks and NBFCs also offer pre-approved personal loan offers to their existing customers having a good credit profile. Being pre-approved, such loans are disbursed instantly with minimal to no documentation requirements.
Personal loan applicants should compare interest rates offered by various lenders as banks and NBFCs offer differential interest rates to different customers depending on several factors such as credit score, monthly income and employer’s profile of the applicant. Some lenders also run special personal loan interest rates offered during the festive season.
EMI/NMI ratio is the proportion of an applicant’s take home salary spent in paying his monthly loan obligations (including the EMI of the proposed personal loan). Banks and NBFCs prefer approving personal loan applications of applicants having EMI/NMI ratio within 50-55%. Applicants whose EMI/NMI ratio exceeds the limit of 50%-55% have lower chances of getting personal loans.
Before applying for a personal loan, applicants can use an online Personal Loan EMI Calculator to know whether their EMI/NMI ratio, after factoring in the EMI of the proposed personal loan, falls within the aforementioned limit. Applicants who exceed this limit can extend their loan tenures to increase their chances of loan approval.
Disclaimer: This article is published in association with PaisaBazaar and not created by TNM Editorial.