Guide for Beginners: Navigating Low-Interest Personal Loans

Posted on Friday, February 2nd, 2024 | By IndusInd Bank

Personal loans are an effective way to meet short-term financial needs like home repairs, medical emergencies, wedding expenses, education costs, etc. However, it is important to take a personal loan with the lowest possible interest rate. Read on to understand more about personal loan interest rates and different factors to consider when choosing a low-interest personal loan.

Checking Eligibility and Loan Amount

The first step is to check your eligibility for a personal loan. Most banks and NBFCS have minimum eligibility criteria like minimum income, credit score, etc.

It is also important to check the maximum loan amount you are eligible for based on your income. Taking a loan slightly lower than your maximum eligibility can sometimes qualify you for lower interest rates. Evaluate your actual financial need versus the maximum loan amount to optimize your interest outgo.

Comparing Interest Rates across Lenders

Personal loan interest rates vary significantly across lenders. The best way to find the lowest rate is to compare offers from at least 3-5 reputed banks and NBFCS.

Check their interest rates for personal loans both online and through branches. Factors like salary structure, credit history, and loan tenure will impact the exact rate quoted. Ensure you are comparing apples to apples by keeping these variables the same.

Some lenders publicly disclose their minimum interest rates, which can be a good starting point. Always negotiate the rate further based on your profile before deciding.

Checking the Effect of Loan Tenure on Interest Costs

While a longer loan tenure may seem better due to lower EMIs, it actually costs more in interest outgo over the lifetime of the loan. As a thumb rule, the shorter the tenure, the lower the interest rate and overall costs.

Most lenders also charge a processing fee. Calculate the total interest and processing fee to identify the most cost-effective option.[SG1] 

Factoring in Interest Reset Options

Some personal loan products offer an option to reset the interest rate during the loan term. This allows you to benefit from falling interest rate scenarios.

While reset options may seem attractive, they tend to come at a slightly higher initial rate. Evaluate if the additional initial cost is outweighed by potential future interest savings based on your income stability and predicted rate movements.

Checking Bonus Points for Salaried Individuals

Many banks offer lower personal loan interest rates to salaried customers. This is due to their stable monthly income source that reduces default risk.

Some lenders also provide an additional 0.5-1% interest discount if you maintain your minimum salary account balance and receive salary credits in it. Explore such tie-ups while loan shopping to maximize your interest savings.

Considering Credit Score and History

Your CIBIL score is a key factor considered in personal loan underwriting. Borrowers with very good credit scores (750+) usually qualify for the lower rates.

Those with inconsistent credit repayment history may be viewed as higher risk and might have to pay higher interest. Build and maintain a strong credit profile through on-time repayments to access more affordable loan options.

Conclusion

To maximize your savings on interest costs, diligently compare offerings from various lenders basis the factors discussed. Aim for stable salaried profiles with good credit scores to access the lowest rates. Opt for shorter loan tenures and check for additional discounts on digital processes.  For one of the lowest-interest personal loans tailored to your needs, check products from IndusInd Bank. Quick disbursals, attractive EMIs and paperless digital experience ensure minimum interest outgo. Visit the IndusInd bank website to explore personal loan options at some of the lowest prevailing interest rates.

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Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.