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A personal loan is a financial product, also known as a consumer loan. It is an unsecured credit provided by Financial Institutions based on certain criteria such as employment history and income stability, income level and repayment capacity, borrower type whether salaried or self-employed, banking quality and spending patterns, qualifications, dependents, and most importantly your present and past credit history. Borrowers repay the amount along with interest in the form of monthly installments over a period known as the tenure of the loan. Here is some information that will help you understand the process and make it simpler to apply for a personal loan.
You can avail a personal loan to fulfill your various financial requirements. Ideally, you check the interest rates offered by different Banks to choose the option that best suits you. Many Financial Institutions provide personal loans to their customers and the interest rates usually range widely from 7% to 36% depending on the varying risk profiles of customers. A list of Banks with their indicative interest rates for personal loans is provided below:
| Bank | Interest Range (p.a.) |
|---|---|
| HDFC Bank | 10.5%-21% |
| Yes Bank | 10.99%-16.99% |
| Citibank | 9.99%-16.49% |
| Axis Bank | 12 %-21% |
| IndusInd Bank | 10.49%-31.5% |
| HSBC Bank | 9.5%-15.25% |
| IDFC Bank | 10.49% onwards |
| Bank of Baroda | 10.5%-12.5% |
| Federal Bank | 10.49%-17.99% |
| Bank of India | 10.35%-12.35% |
| IDBI Bank | 8.15%-10.9% |
| State Bank of India | 9.6%-15.65% |
| Punjab National Bank | 7.9% onwards |
| RBL Bank | 14%-23% |
| Kotak Mahindra Bank | 10.25% onwards |
| Aditya Birla Capital | 14%-26% |
| Bank of Maharashtra | 9.45%-12.8% |
| Central Bank of India | 9.85% onwards |
| City Union Bank | 12.75% onwards |
| India Overseas Bank | 9.3%-10.8% |
While applying for a personal loan, you must keep a few points in mind to ensure that you get the lowest interest rate possible.
Credit score: Maintaining a high credit score should always be your priority when it comes to securing low personal loan rates. Not only does it make it easy for you to get a loan, but your chances of being offered lower interest rates increase significantly.
Timely repayments: Missing payments can easily reduce your credit score along with your chances for the next loan approval. Lenders will certainly consider your repayment history before deciding your interest rates. So, the best way to ensure a competitive interest rate is to make your payments timely.
Look for offers: You should always look out for offers that some banks and financial institutions may be running for a festival or a limited period. Such offers usually provide lower interest rates.
Compare interest rates: Before applying for a personal loan, you may want to compare the interest rates offered by different financial institutions. This way you can opt for the lowest interest rate on your loan amount.
Negotiate: It is always worth your while to negotiate with your lender for a lower interest rate. Especially if you are an existing customer of the bank and have managed to harbor a good relationship with the loan provider.
There are several factors responsible for determining your personal loan interest rate, based on an organization’s policy. However, the following are some of the most critical deciding factors for loan providers.
Age: The age of the applicant can greatly affect the interest rate quoted by the lender. Individuals nearing their retirement are likely to be offered a higher interest rate.
Employment: Factors such as employment status, nature of employment, and reputation of the employer play a huge role in defining the borrower’s credibility. The stability of your work assures the lenders of timely repayment; hence, they can consider you for a lower interest rate.
Income: Your income will automatically be taken into account before deciding your interest rate. The higher your income, the lower the risk you pose, hence, you will be able to secure a lower interest rate. Vice versa a person with a lower annual income will have to pay a higher interest rate.
Banking relationship: If you have an ongoing relationship with the bank, you may be offered a lower interest rate based on your loyalty and banking history. Cultivating a longstanding relationship with bank staff also helps your case at times. This, however, is only at the discretion of the bank, as all existing customers may not be offered a better interest rate.
History of loan & Fixed Obligation to Income Ratio (FOIR): Your previous records of loans and repayments will be tracked and assessed before approving your next loan as well as for deciding your interest rate. If you have been diligent in repaying in the past, the lender will have more confidence in you, thus offering you a better rate. Any loan default, especially in the last 12 months, can go against you and can spike your interest rate.
Credit score: Your credit score will always be of prime importance to the bank while considering your loan application. Lenders need to learn your creditworthiness and capability to repay, which is indicated through your credit score.
Type of applicant: Male or female, salaried or self-employed, retired or working, all these factors greatly influence the interest rate offered to an individual. Salaried individuals may be offered a lower interest rate, as self-employed individuals may not have a fixed income. While, some banks offer a lower interest rate to pensioners, especially if they have been active customers.
You can use the personal loan EMI calculator offered by lendingplate to calculate your EMI. The information that you will need to enter is your loan amount, interest rate, and repayment period, and you will be able to calculate your monthly EMI.
The formulae to manually calculate the same is mentioned below.
EMI = [PxRX(1+R)^N]/[(1+R)^N-1]
P: loan amount
R: interest rate charged per month
N: the total number of monthly instalments.
You can opt for a fixed or floating interest rate, based on options provided by your lender.
The interest on a loan denotes the cost of your borrowing. Hence, it is better to opt for the lowest interest rate available in the market. But be aware of other charges levied by your lender.
Yes, you may get a personal loan for a low Credit Score. By getting a co-applicant with good credit, you can get a good rate.
Yes, offering collateral is a good way to get an affordable rate of interest. Your rate is determined based on your risk level. Offering collateral reduces your risk level significantly as serves as security against non-repayment. But keep in mind that if you fail to repay the loan on time, the lender might take over your collateral.
You will be charged a late payment fee by your lender if you fail to pay your EMI on time. This fee will be mentioned in your loan document. In addition, you may also have to pay a penalty for late payment.
If you opt for a personal loan with a fixed interest rate, there will be no changes to the interest rate during the loan tenure. If you opt for a floating interest, the bank may change the interest rate when the MCLR changes.
The EMI is an important factor to consider, but you should also take other factors into account such as the processing fee, tenure of the loan, interest rate charged, repayment options, reliability of the loan provider, etc. when applying for a personal loan.
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Unifinz Capital India Limited is a Non Banking Finance Company (NBFC) registered with the Reserve Bank of India (RBI). lendingplate is the brand name under which the company conducts its lending operations and specialises in meeting customer’s instant financial needs.
