People are always searching for a financial lifeline that offers a flexible and easy solution during unexpected times. A home renovation, paying off credit card bills, a medical emergency, or marriage expenses - a personal loan can instantly give you financial relief. And its skyrocketing popularity highlights why more and more people are availing this help to meet their demands.
The irony? All personal loans are created differently. They come with interest rates that can truly make a big difference, turning a good offer into an expensive one. This makes finding the best personal loan with low interest a must to keep your finances in check. To spot the loan that won’t break your bank, read this blog.
What is a Personal Loan and Why its Interest Rate Matters
It is a type of loan that delivers the flexibility to borrow money from a financial institution and repay it through monthly installments over a specified period of time. Unlike automobile, home, or business loans, personal loans cater to marriage expenses, medical emergencies, travelling, gold investments, debt consolidation, and other financial needs.
They are available in two types: secured and unsecured loans. Secured loans demand collateral, such as property or car, to reduce the lender’s risk. Alternatively, unsecured loans require no collateral.
Now, let us talk about interest rates. Why do they matter? The simple answer is that it directly impacts the repayment amount. The higher the interest rate, the higher the amount of EMIs. What about lower interest rates? They help you save money, making repayment a breeze. That is why, before signing the loan agreement, ensure to check the facts for your wallet to thank you later. Want fast approval personal loan at lowest interest rate Apply personal loan from My Mudra Fincorp Ltd.
Key Influencers That Determine Personal Loan Interest Rates
Are you wondering why you and your best friend got a personal loan of the same amount from the same bank at different interest rates? The factors below might have influenced personal loan interest rate.
Credit Score
This factor tells banks about your financial reputation, highlighting your creditworthiness when it comes to repaying loans and credit card bills. If your credit score is 750 or above, it indicates that you are a responsible borrower which makes you eligible to avail lower interest rates. Alternatively, people with low credit scores are considered risky borrowers, increasing interest rates and even chances of rejection.
Pro Tip: Pay off your debts, reduce credit utilisation, and improve your credit score to get a low-interest personal loan.
Loan Amount
It may come as a surprise to many, but it is true that the amount you want to borrow also changes the interest rate. Lenders offer small loans with higher rates. The reason? Processing and administrative charges are the same, irrespective of the amount, making them less profitable. In a similar way, big loan amounts come with higher personal loan interest rate, particularly if your debt-to-income ratio is not aligned with the borrowing amount. Therefore, borrow only what you need and can pay without any stress.
Loan Term
Whether you are applying for a long-term loan or a short-term, both options affect your interest rate. Usually, 1-3 year loans come with lower interest rates but high EMIs, while 5 years or above loan terms make you pay more interest over time. What is the recommendation for the best personal loan with low interest? If you can manage higher monthly payments, choose a short-term, low-interest personal loan to save money in the long run.
Type of Loan
Wondering why your brother secured a personal loan at 7% and you at 12%? This could be due to different types of loans. Unlike unsecured loans, in secured loans, lenders are at less risk, making them offer personal loans with lower interest rates. Also, remember that if you fail to repay the loan amount, the lender can seize your asset to cover their money.