The Reserve Bank of India released a report, stating that the personal loans constituted 24% of the total credit in March 2020, during FY19-20.
- A CRISIL study also revealed the personal loan segment is growing at a CAGR of 24% during FY19-FY24.
- The total transactional value of the personal loan category is anticipated to reach Rs.1015395 million in 2021.
These statistics clearly indicate the rising demand for personal finance in India primarily due to easy availability of low interest personal loan. Since a personal loan’s interest rate determines its affordability, individuals look for the most competitive rate when it comes to choosing a lender.
However, the interest rate on a personal loan not only depends on the lender chosen. Several other factors also play a deciding role in this regard. Thus, individuals looking for a low interest personal loan needs to keep a few things in mind to get the most of the funds availed.
How to get a personal loan with low interest?
Following are some tips that borrowers, both new and existing ones, can follow to get an affordable personal loan.
Maintain a good credit score
Most lenders ask for a credit score of 750 or above to approve a personal loan application. To ensure this, one can follow some simple practises like paying existing dues on time, maintaining a healthy credit mix and much more.
2. Site all your income sources
Individuals who do not have a high credit score should make use of their professional credentials. Besides the monthly salary, they can also mention other income sources like rental yields, earnings from FD, etc. It will help them to avail better interest rate for their personal loan.
3. Check credit utilisation ratio
Experts advise maintaining a credit utilisation ratio below 30% to be eligible for a low interest personal loan. For instance, you have a credit card with a monthly limit of Rs.50,000, and you have used Rs.40,000. Then your credit utilisation ratio will be 80%. In that case, a lender more likely would not sanction you a personal loan let alone charge a lower interest rate.
4. Opt for a Flexi loan
This facility allows the borrowers to withdraw funds from a predefined credit limit. Moreover, the borrowers need to pay interest only on the funds utilised, allowing them to save substantially in interest payment.
However, they need to know how to get the most out of their Flexi loan in those cases.
Benefits of availing a low interest personal loan
The lower interest implies lower monthly instalments. It eventually helps the borrowers to pay the EMIs on time and consequently, the credit score. Missing a single EMI can affect the credit score and lead to higher NPA generation.
- It is anticipated that by March 2022, the NPA for financial institutions would grow 10% to 11% of the total loans in India.
Thus, to avoid such a scenario, one must pay the EMIs on time. In that case, they can also read more about how to manage personal loan EMI repayment efficiently.
2. Easy Repayment
The lower interest rate also facilitates smooth repayment of the doorstep loan. It also allows breathing freely while servicing a low interest personal loan.
To make the process easier, some lending institutions like Bajaj Finserv extend pre-approved offers that expedite loan processing and save time. Such offers are also available on various credit products like business loans, personal loans, etc. You only have to enter your name and mobile number to know your pre-approved offer.
Personal loan borrowers should also know the difference between flat and reducing interest rate to derive the total interest payable, at the end of tenure.