In August 2020, the total volume of personal loan disbursed in India stood at Rs.5,07,684 crore. The surge in the popularity of this credit option can be accredited to factors like an increase in disposable income, better living standards and availability of small-ticket loans.
- As of March 2020, the small personal loans below Rs.50000 increased credit volume by 162% Y-o-Y.
- Compared to 2018, personal loan borrowers with an annual income of less than Rs.3 lakh increased from 53% to 78% in August 2020.
Regardless of the popularity of personal loans among salaried individuals, especially millennials, the delinquency rate in the 31-180 days past due date increased to 5.55% by March 2020.
The primary reasons for default or late repayment include poor financial management and the high cost of borrowing. While the former can be rectified through practice, individuals can lower their overall borrowing cost by securing a low interest personal loan in 2021.
Tips to secure lower rates of interest
By following these tips, individuals can secure an instant personal loan at competitive interest rates –
Tip 1 – Select a shorter tenor
Loan tenor influences interest rates to a great extent. Most financial institutions decide loan interest rate for a specific borrower based on their choice of the tenor. Usually, they consider long-term loans to be riskier than credit with a shorter tenor.
So, if an intending borrower applies for a short-term loan, he/she is more likely to secure a personal loan at a lower rate. Regardless, individuals should always find the right personal tenor that works for them the most to ensure smooth repayment. They may use the loan EMI calculator to determine the best combination of loan amount and tenor to ease the process further.
Tip 2 – Increase your credit score
Applicants’ credit score is a numeric representation of their creditworthiness. This is why most lending institutions prioritise applicants with a high CIBIL score above 750 over others while approving loan applications.
Also, applicants with a high CIBIL score are more likely to secure better repayment terms, including lower interest rates. Unlike most parameters, individuals can improve their CIBIL score for a personal loan. One of the easiest ways to do so is repaying existing debt and credit card bills on time.
Tip 3 – Keep your FOIR low
Maintaining a low Fixed Obligation to Income Ratio or FOIR also comes in handy to avail a low interest personal loan. Existing debit and credit card dues comprise a large part of one’s fixed obligations and often leaves individuals with little disposable income.
This, in turn, hampers their repayment ability and often puts them at risk of default. Therefore, most financiers prefer applicants with low FOIR.
Suppose two individuals, one with a FOIR of 47% and another with that of 52%, apply for a personal loan. The individual with a FOIR of 47% is more likely to avail of a low interest personal loan.
Tip 4 – Don’t apply for multiple loans
Applying for multiple loans proves detrimental for current credit score and hampers one’s chances of securing approval at low rates. In other words, applying for more than one credit option around the same time leads to multiple hard enquires which stays on a credit report for at least 2 years.
This directly lowers the applicant’s current score and further projects them as a credit hungry entity in front of lending institutions, thus significantly influencing personal loan eligibility criteria.
Tip 5 – Pay all dues on time
Avoiding loan default and repaying the debt on time is equally essential to maintain a spotless credit record. It also proves effective in enhancing one’s creditworthiness. Collectively, this puts instant personal loan applicants in a better position to negotiate with financiers for better repayment terms like lower rates or relaxed tenor.
Besides these, by comparing the rates offered by leading financial institutions, individuals can avail low interest rates for personal loans. However, one should not choose a loan entirely because of its accompanying interest rate. He/she should also factor in parameters like loan features, terms of service provided by the lending institution and additional charges on loan to make an informed choice.
Generally, leading financial institutions like Bajaj Finserv are transparent about additional charges and provides loans at competitive rates. They also provide customers with pre-approved offers to make their borrowing experience less cumbersome. The said offer is available on financial products like business loans, personal loans, credit cards, etc. Check your pre-approved offer now with your name and contact number in a few simple steps.
Existing borrowers can switch lenders to avail the benefits of low interest personal loan through balance transfer. However, timing and processing charges are crucial when it comes to transferring loan balance. Therefore, one must find out about all requirement and terms in detail to avoid last moment confusion.