Whether you need funds to meet an emergency medical expense, renovating your home or purchasing a high-end gadget, you can easily avail a personal loan with minimal paperwork and quick processing. However, the collateral-free nature of the loan usually results in higher interest rates on personal loans. It is vital that you avail one at a reasonable rate of interest so that you don’t end up using a huge chunk of your income on interest payout. The article discusses top 10 banks that offer the lowest interest rates on personal loans, key factors affecting personal loan interest rates along with a few tips to avail a lower rate of interest on your personal loan:
Top 10 Banks offering Lowest Personal Loan Interest Rates
Given below are top 10 banks that offer the lowest interest rate on personal loans:
|Bank Name||Interest Rate* (p.a.)|
|UCO Bank||8.45% onwards|
|Central Bank of India||8.45% onwards|
|Union Bank of India||8.90% onwards|
|Punjab National Bank||8.95% onwards|
|Indian Bank||9.05% onwards|
|Bank of India||9.35% onwards|
|Bank of Maharashtra||9.55% onwards|
|State Bank of India||9.60% onwards|
*Interest rates are subject to periodic change.
Factors Affecting Personal Loan Interest Rates
The following are a few key factors which affect personal loan interest rates:
- Credit History and Credit Score: A clean credit history and a high credit score (750 or above) indicate a higher creditworthiness. This may in turn increase your chances of securing a personal loan at a lower rate of interest.
- Income: Higher income usually indicates greater personal and financial stability and thus, a higher repayment capacity. This may often result in a comparatively lower rate of interest on your personal loan.
- Fixed Obligation to Income Ratio (FOIR): It refers to the ratio of your pre-existing credit card dues and loan EMIs to your income. A low FOIR indicates few pre-existing obligations and thus, a greater disposable income to pay the new loan EMIs. Maintaining a low FOIR (preferably lower than 50% ) may thus, help you avail a lower rate of interest on your personal loan.
- Employment Type and History: Those working with a reputed private or government enterprise and having a stable employment history may be able to avail a preferentially lower rate of interest on their personal loans. Also, the nature of your employment, i.e., whether you are salaried, self-employed or a pensioner also often affects the interest rate charged on your personal loan.
- Prior Relationship with the Lender: Your pre-existing relationship with the lender also affects the interest rate offered on your personal loan. For instance, if you have a good prior relationship with a bank, such as a savings or salary account, etc., you have higher chances of securing a lower rate of interest on your personal loan.
Tips to Get Low Interest Rate on a Personal Loan
Given below are a few key tips that can help you avail a lower rate of interest on your personal loan:
- Maintain a clean credit history and a high credit score. These indicate a higher creditworthiness and good repayment track record which can help you avail a lower rate of interest on your personal loan.
- Have minimal outstanding debt, that is, try and have a credit utilization ratio of 30% or lower.
- Have a stable history of employment or business history (in case you are self-employed)
- Apply for a personal loan with a lender with whom you have a good existing relationship with.
- Compare different interest rates and charges online using an online financial marketplace such as Paisabazaar.com before you actually apply for a personal loan.
- Opt for a secured personal loan like a loan against shares, KVP, NSC, LIC, etc.