A personal loan is an unsecured loan and is one of the quickest and easiest kinds of loans to be availed. Unlike an education or a home loan, a personal loan can be taken for any reason and there is no specificity attached to it. It can be used for various situations to deal with any kind of shortage in the fund. You can opt for a personal loan in case there is a medical emergency or even if you are planning o renovate your house or go for a long vacation. As, mostly, it is a collateral-free loan, the banks usually charge higher interest on personal loans. Other secured loans like home loans or education loans have lower rates of interest.
However, one thing has to be kept in mind. The interest rates for the personal loans from the same bank may differ from person to person. It depends upon the credit scores of the borrower, his income and employment type, his history of loan repayment etc.
The factors affecting the rates of a personal loan
Some of the factors which decide the rate of interest are:
- Credit scores: A credit score is a 3-digit representation of the credit history that is a record of how regularly the EMIs and the credit card bills have been pad in the past.
- Defaults: If there is any kind of profile in the credit profile, the borrower gets a higher rate of interest from the bank or the application might get rejected.
- The employer and the nature of employment: If you are a salaried professional working with an MNC or a large corporate or a government employee, you will be definitely preferred by the bank.
- Income: The high-income borrowers are considered to be more stable and hence the lenders are more assures that the debt will be repaid without any hassle.
- A long term relationship with the lender organization: If you are maintaining a healthy and a long term relationship with the bank or the financial institution, the lenders will perceive that the loan will be easily repaid. This entails in getting a lower rate of interest.
How do the low interest loans work?
When it is about personal loans at lower rates of interest, there is a certainty that the money will come back to the lender. In comparison to this, a regular and an unsecured loan may be defaulted on, wherein the lender may lose the money. The task of getting approval on low-interest loans is practically impossible when the credit score is very low.
With the passing days, the chances of getting a low-interest personal loan are going down. You will search for these loans almost everywhere, starting from private money lenders to friends, family members or relatives. Most of the times, these search methods are unproductive. Instead, the quality time goes in waste and the rate of success also diminishes.
Search online
The search process can be shortened with the help of smart internet browsing. Many private lenders advertise their services either directly or indirectly on the internet. When you Google your search, you can see the relevant advertisements.
Also, there are many sites which act as platforms where you can seek personal loans from established lenders. You do not have to keep on visiting lenders as the application will be directed to the suitable lender. To get low interest personal loans from these online platforms, the credit score has to be higher.
A very important thing to be kept in mind in this regard is that the non-bank lenders do not grant low interests on personal loans without reviewing the financial background of the applicants. Do not get misled by these kinds of advertisements. If you do not have a high credit score, the only chance of getting a low-interest personal loan is to either put up collateral or have a co-signer to support the loan application.
Tips to get low interest rates
- Always try to maintain a good credit score. Keep checking it for any defaults.
- Compare and choose the lender who is right for you.
- Try to repay if you have any existing debt.
- Look for offers which are already pre-approved.
If you finally manage to get a low interest personal loan, you will be able to save a significant sum of money which can be used for other purposes. Also, you have lighter EMIs to pay.