Personal Loan interest rates determine your overall affordability of the loan. Since it is a collateral-free loan, getting access to funds via a quick Loan is easy and risk-free. But, winning your lender’s trust by proving your creditworthiness is the key to getting the loan at a lower interest rate. The average interest rate on Personal Loans this year will range across 10%–28%. However, striking the best deal in terms of a nominal interest rate will mean abiding by a list of eligibility criteria put forward by your lender and having a good credit score of above 750.
While there are various factors that affect the interest rate on Personal Loans, here’s how the rate will vary this year.
It varies across lenders and their offerings
Lenders observe a stringent process to offer you a sanction on your Personal Loan application. You can negotiate to avail the Instant Personal Loan at low rate of interest, provided you have a good credit score and accurately match the eligibility criteria.
Consider NBFCs that offer up to Rs.25 lakh on a competitive rate of interest for a tenor of 12 to 60 months. You also have the option to avail the Flexi Loan facility. This allows you to withdraw funds multiple times from your sanctioned amount as per your needs. You pay interest only on the amount you use and not the entire sanction. Further, you can choose to pay interest-only EMIs and repay the principal at the end of the tenor. This flexible arrangement lets you use the Personal Loan for an array of unplanned expenditures and urgent cash needs.
It varies based on your credit score and credit history
Lenders give utmost importance to a good credit score while analysing your credibility for a loan. Here a score above 750 is considered to be healthy by most lenders. If you have a low credit score, lenders will consider you less trustworthy. Even if they approve your application, you will pay a higher interest rate ranging from 18%–28%. Lenders will also check your credit history to see how you have repaid your previous debts. Only when they see a healthy repayment history, will they sanction you a high value Personal Loan.
It varies based on your eligibility for the Personal Loan
In order to qualify for a Personal Loan, you will generally have to abide by criteria, such as be a 21- to 60-year-old resident citizen of India. Apart from this, lenders specify a list of employment and income parameters, based on which they grant you a sanction. For example, lenders like Bajaj Finserv set the net salary amount differently for different cities. So, if you applying for a Personal Loan in Gurgaon then your minimum salary should be Rs.37,000 every month. If you are residing in cities like Ahmedabad or Kolkata, you will get a loan sanction on a net salary of minimum Rs.32,000 every month. Meeting these criteria will help you get a nominal Personal Loan interest rate. Additionally, having a good employment history and working with MNCs or reputed organisations will help you get a sanction quicker on lower interest rates.
It varies basis your debt-to-income ratio
The debt-to-income ratio is an important factor that the lenders pay attention to while evaluating your Personal Loan application. This is the ratio of debts you have in contrast to your income. The lender will consider your gross income in this regard and will evaluate how much of it you use to repay your loans and credit card dues. A DTI of 50% or higher is a red flag for your lender and they will immediately increase the interest rate on your loan offer. However, a balanced DTI of 35–45% is considered healthy and signals your financial fitness.
This means you will secure a loan on better terms and lower interest rate if your DTI is within this bracket or lower.
After you have analysed your eligibility for the loan, check the Personal Loan EMI calculator to determine an EMI that fits your pocket for easy repayment. Now you can apply for a Personal Loan using your pre-approved offer.