A personal loan is a handy solution to manage your planned and unplanned expenses – whether it is the renovation of your home or a medical emergency or pretty much anything else that requires immediate financing.
But when it comes to a personal loan, the terms of your loan deal depend almost entirely on your financial profile. Your age, the city you reside in, the type of employment, your monthly income, your credit score, and your debt-to-income ratio – the relationship between your income and your existing debt – are important factors that determine the loan amount and the personal loan interest rate that you are likely to be offered.
Among these, your CIBIL score is perhaps considered most critical since it is a reflection of how responsible you are with loans and other types of credit. Therefore, when you are applying for a personal loan and looking for a low interest rate, make sure that you have a high CIBIL score (usually a score of 750 or higher).
A strong financial profile usually has very good chances of getting a personal loan at a more favourable rate of interest.
However, this task is easier said than done. Building or restoring your CIBIL score can take time and improving your income and eliminating debt may not be something you can do at the drop of a hat. So, does that mean that you cannot avail of a low interest personal loan without doing things the hard way? The truth is that there are simple steps that you can take to get a better rate on your personal loan.
Here are some smart ways in which you can get a low interest personal loan very easily.
- Disclose all your sources of income
If you have significant earnings from income sources other than your job, indicate them to your lender. For instance, you may have consistent rental income or a solid investment portfolio or have just benefited from a windfall gain. The idea here is to reduce the lending risk by showing that you have sufficient income to repay the loan. This does not mean you need to take up a side job. You need to simply leverage all your current earnings to prove that you have a stable income.
- Approach a lender you have a good relationship with
Today, personal loans are offered by a wide range of lenders, but it pays to stick with someone you have had dealings with. The reason is that you enjoy a set of benefits that you wouldn’t have, had you gone to a new lender. For instance, your current lender, being aware of your income and financial behaviour, maybe more readily convinced that you will repay the personal loan without default. Similarly, you may get a better rate or a few other benefits as a reward for your loyalty.
- Be flexible with the particulars of your loan
If the lending risk is too high, you should consider changing either the principal amount or the tenor. Taking a large loan implies that your EMIs will be high. You may have to reevaluate your financial needs and opt for lesser funding. Conversely, you can tweak the tenor of your loan. The tenor affects your EMI inversely and you can use a loan EMI calculator to view this relationship. It is best to take the shortest tenor you can manage. This limits your total interest outgo and reassures your lender, as your financial profile is likely to remain predictable over the short-term. From there on, if either of you is uncomfortable with the size of the EMI, you can consider extending the tenor slightly.
There are a few more tips that can help you easily get a low interest personal loan:
- Look for seasonal loan deals
- Offer an asset as collateral
- Apply with a co-applicant
With these simple strategies, you can get favourable interest rate offerings from your lender. Non-banks such as Bajaj Finserv offer instant loans that you can avail of in just 24 hours. You can take advantage of a high value Bajaj Finserv personal loan amount and convenient repayment tenors of up to 60 months, and the Flexi loan facility can help you make your EMIs more manageable.
So, if you are planning to apply for a personal loan, keep the above-mentioned points in mind and make a more informed decision.
(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
FAQs
You can generally use a personal loan for almost anything, including a wedding, a vacation, a medical bill, an emergency circ*mstance and more. However, there are also some expenses a personal loan usually can't be used to cover.
How to pay the least amount of interest on a personal loan? ›
Make bi-weekly payments
Instead of making monthly payments toward your loan, submit half-payments every two weeks. The benefits to this approach are two-fold: Your payments will be applied more often, so less interest can accrue.
Is it worth it to get a personal loan to pay off debt? ›
As of November 2023, the average interest rate on a personal loan with a 24-month term was 12.35%, according to data from the Federal Reserve. So, by using a personal loan to pay off your credit card debt, there could be significant savings, as the average credit card rate is currently 21.47%.
Is it smart to get a personal loan to consolidate debt? ›
Debt consolidation is ideal when you are able to receive an interest rate that's lower than the rates you're paying for your current debts. Many lenders allow you to check what rate you'd be approved for without hurting your credit score so you can make sure you're okay with the terms before signing on the dotted line.
What can't you use a personal loan for? ›
College tuition: Most lenders prohibit you from using personal loans to pay college tuition and fees. Additionally, many lenders won't allow you to use a personal loan to pay off existing student loans. Down payment on a home purchase: You typically can't use a personal loan for a down payment on a home.
Can I use a personal loan for whatever I want? ›
Personal loans can be used for almost any purpose. Unlike home mortgages and car loans, personal loans are usually not secured by collateral. Personal loans can be less expensive than credit cards and some other types of loans but more expensive than others.
How much would a $5000 loan cost per month? ›
The monthly payment on a $5,000 loan ranges from $68 to $502, depending on the APR and how long the loan lasts. For example, if you take out a $5,000 loan for one year with an APR of 36%, your monthly payment will be $502.
How to pay off a $10,000 loan fast? ›
To pay off debt fast, you need to exceed your minimum payments every month. Target the debt with the highest interest rate, also known as the "avalanche method." Lower your interest rate by requesting a lower APR from your card provider or consolidate debt.
Does it hurt your credit to pay off a loan early? ›
Yes, paying off a personal loan early could temporarily have a negative impact on your credit scores. But any dip in your credit scores will likely be temporary and minor. And it might be worth balancing that risk against the possible benefits of paying off your personal loan early.
Do personal loans damage your credit? ›
A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can be a big help when it comes to determining the loan repayment term that's right for you.
You can get a personal loan for almost anything, such as consolidating debt, improving your home or making a large purchase. The short list of things you cannot use a personal loan for includes illegal activities, gambling, investments and, sometimes, post-secondary education expenses.
Is it bad to take out a personal loan for a down payment? ›
Most banks will not accept a personal loan as a down payment on a house because it indicates that you might not be the most reliable borrower. Taking out a personal loan also increases your debt-to-income ratio, or DTI. To get this number, divide your gross monthly income by your monthly recurring debt.
Why is it so hard to get approved for a debt consolidation loan? ›
Although lenders differ, most require that borrowers have a good credit score, a low debt-to-income ratio and a steady income. Some lenders cater to borrowers with lower credit or allow for co-signers, which can increase your approval odds and or grant you a better interest rate.
Why are personal loans bad debt? ›
Higher monthly payments than credit cards
Higher monthly payments can be more difficult to manage depending on your finances. As a result, you might be at higher risk of defaulting on the loan.
Can I still use my credit card after debt consolidation? ›
The short answer is Yes, people are generally allowed to use their credit cards after debt consolidation as it does not typically involve closing credit card accounts.
Can you borrow money for personal use? ›
You can use a personal loan for almost any purpose such as buying a car or to help manage your existing borrowings. However, we will not offer a loan for: Speculative purchases, for example: gambling, investments and share purchases. Any illegal purposes.
Can you write off a personal loan to a friend? ›
For a bad debt, you must show that at the time of the transaction you intended to make a loan and not a gift. If you lend money to a relative or friend with the understanding the relative or friend may not repay it, you must consider it as a gift and not as a loan, and you may not deduct it as a bad debt.
Can I write off a personal loan? ›
Though personal loans are not tax-deductible, other types of loans are. Interest paid on mortgages, student loans, and business loans often can be deducted on your annual taxes, effectively reducing your taxable income for the year.
