Instant* personal loans are a convenient financial tool for addressing various needs, whether it is a medical emergency, a big-ticket expense, or debt consolidation. However, high interest rates can significantly increase your monthly repayment burden and the cost of borrowing.?
In this article, we'll understand how personal loan interest rates work and share practical tips to help you secure a loan at a lower rate.
A personal loan interest rate is one of the main components that contribute to the cost of borrowing money; and is expressed as a percentage of the loan amount.?
A higher interest rate could result in increased Equated Monthly Instalments (EMIs), which may prompt borrowers to opt for a longer repayment tenure to keep their monthly payments manageable. While a longer tenure can reduce the immediate repayment burden, it also leads to higher overall interest costs over the loan period.
To better understand the relationship between EMI, tenure, and interest rates, borrowers can use a personal loan EMI calculator. Many reputable lenders, including SMFG India Credit, provide a free EMI calculator on their websites. This tool allows applicants to estimate their repayments in advance and make informed borrowing decisions.
Apart from the interest rate, it is equally important to consider other fees and charges associated with the loan, such as processing fees, late payment penalties, prepayment charges,, and other lender-specific fees. These charges vary across financial institutions and can significantly affect the total cost of borrowing.
A high credit score indicates to lenders that you are a responsible borrower with a history of timely repayments. To build and maintain a strong credit score, ensure that all bills, credit card dues, and existing loan EMIs are paid on time. Keep your credit utilisation ratio low to demonstrate responsible use of credit and reduce the risk of debt accumulation. Additionally, avoid submitting multiple loan applications within a short period, as each hard enquiry can temporarily lower your score and signal financial distress.
Lenders generally favour applicants with a score of 750 and above for lower interest rates.
The interest rates and other terms for instant* loans online can vary significantly across lenders, making thorough research and comparison essential.?
Be cautious of interest rates that appear too low, as these may be calculated on a monthly or quarterly basis or come with hidden fees, high processing charges, or unfavourable repayment terms. Always seek clarity on the associated fees and charges to get a complete picture of the total loan cost.
If you're an existing customer with a lending institution and have maintained a strong repayment history, you may be eligible for a preferential interest rate. Get in touch with your lender to discuss the possibility of getting a lower rate on a top-up or new loan.
Your employment history and income stability also play a crucial role in determining the interest rate. Borrowers with consistent income and stable jobs, such as salaried employees working in a reputed private organisation, are often considered lower risk and may qualify for lower interest rates.?
A low debt-to-income ratio further reassures lenders that you can manage additional loan repayments without financial strain.
Applying for a personal loan with a co-applicant ¨C such as a spouse, parent, or close family member ¨C who has a strong credit score and stable income - can improve your chances of securing a loan at a lower interest rate. Lenders assess the combined income and creditworthiness of both applicants, reducing the risk of default and increasing the likelihood of favourable loan terms. Lenders typically only allow immediate family members who live in the same house or city to be a co-applicant for a personal loan.
Before proceeding, ensure that both applicants are comfortable with the shared repayment responsibility, as any missed payments can affect both credit scores.
Securing a personal loan at a lower interest rate requires careful planning and financial discipline. By maintaining a strong credit score, reducing any existing debt before applying for a new loan, and ensuring stable employment, you can improve your chances of securing favourable loan terms.
Additionally, comparing multiple lenders and evaluating not just the interest rate but also associated costs ¨C such as processing fees and prepayment penalties ¨C will help you make an informed borrowing decision.
*T&C apply. Loan eligibility, loan terms, and loan disbursement processes are subject to the lender's policy at the time of loan application.