27 Feb 2019 | 3 min read
A personal loan is meant to address the short-term financial needs of an individual. Personal loans have been designed keeping in mind the needs of the salaried /self-employed class or people who have a continuous source of income.
We often receive questions from loan applicants regarding which bank/lender provides the cheapest personal loan in India. Banks publish the personal loan interest rate related to different personal loan products regularly but there are other things to be considered in addition to this published rate of interest. This is the reason why two applicants in the same bank may be offered different personal loan interest rate.
Here we will discuss the factors that determine your ability to get the cheapest and the best personal loans-
Banks are interested to know the credit profile of the borrowers. From this, the bank evaluates his creditworthiness. You can avail of a cheaper personal loan if you want a higher loan amount and you have a higher income and credit score at the same time.
The higher your income, the lower the interest rate would be. You are viewed by the lenders as a safe candidate with higher revenue because you have less chances of defaulting on your loan repayments. Let's say, the lender might give you an interest rate of 14 percent if your income is Rs. 25,000 per month, and if your income is Rs. 70,000, you could get an interest rate of 12 percent from the same lender
In terms of interest rates and loan acceptance, if you have a strong repayment history, it will fit well for you. Individuals who have been regular in repayment are considered responsible and less risky borrowers. Hence, they can get a personal loan at lower interest rate.
If the lender detects defaults in your credit profile, you will either be charged a very high interest rate or your application could be denied. Mostly lenders prefer the customers with no defaults in the last 12 months.
Most of us prefer to open one bank with our savings accounts and fixed deposits, thereby becoming loyal customers of the bank. Due to this loyalty, when the need for a personal loan arises, you manage to share an interpersonal relationship that is likely to attract competitive interest rates. You definitely have some power on your side as an old client, as your current bank does not want to lose out on a customer to some other bank.
In deciding your personal loan interest rate, the reputation of the organization you work for often plays an important role. The more the company is known and stable, the lower the interest rate on your personal loan. This is because banks expect a stable job for workers of reputed companies, making them more responsible for paying off the debt.
Tenure plays a very important part in securing the best personal loans at a cheaper rate. The longer the repayment period,the higher may be the interest rate and vice-versa.
It's as simple as buying any other product on the market. You need to talk to prospective lenders and line up alternatives. Bargain with the bank credibleyand realistically manner as the threat of losing a credible customer to competitors may induce the banks to lower the personal loan interest rate for you.
To make yourself more credible, make your income easily verifiable to the bank. We recommend the below mentioned points:
Provide to the bank as many documents as possible related to your income proof. IT returns, form 16, salary slip and bank statements are the documents that would interest the bankers.
After the bank verifies your documents, it is more likely to offer you a cheaper personal loan interest rate, than what you were offered before. Hence, wait till the bank comes back to you after screening your income documents.
Peruse the draft loan agreement carefully to check for any hidden clauses/charges. If required, check for expert advice from someone you can trust before making the all-important decision.
Calculate your possible EMI outflow every month (including the interest rate) with the personal loan EMI calculator at Afinoz.com.