The Ultimate Guide to Securing a Low-Interest Personal Loan in 2025

Personal loans can address a range of financial needs, such as home renovations, wedding expenses, business expansion, travel, medical emergencies, and even debt consolidation.

A lower personal loan interest rate is advantageous, as it helps reduce the overall cost of the loan and contributes to lower Equated Monthly Instalments (EMIs).

Through this article, you'll discover the key factors that influence personal loan interest rates and learn actionable strategies to improve your chances of qualifying for a loan at a competitive rate.

Understanding what influences your personal loan interest rate can help you better prepare for your loan application and improve your chances of approval at favourable terms.

• Age: Younger applicants (typically aged 22 and above but not close to retirement) generally have a higher likelihood of securing lower interest rates as they have more earning years before them.

• Employment Type: Salaried professionals working with reputed private companies or government organisations are usually seen as lower-risk applicants due to their stable income. This perceived stability can potentially translate into lower personal loan interest rates.

• Credit Scores: A credit score of 750 or above is generally considered excellent and reflects strong creditworthiness. It reassures lenders of your ability to meet repayment obligations, increasing your chances of getting a loan at a lower interest rate.

• Repayment History: Lenders often assess your past repayment behaviour before approving personal loans. A track record of missed or delayed payments can categorise you as a high-risk borrower, potentially leading to higher interest rates. On the other hand, a consistent history of timely payments may work in your favour.

• Debt-to-Income (DTI) Ratio: Your DTI ratio – calculated by dividing your total monthly debt obligations by your gross monthly income – indicates your capacity to manage additional debt. A high DTI suggests you already have significant existing debt obligations, making it challenging to manage additional EMIs. This may lead to either a loan rejection or higher interest rates to offset the perceived risk.

• Relationship with the Lender: Existing customers with a long-standing relationship and a solid repayment history may qualify for preferential personal loan interest rates.

While the final interest rate is determined by the lender – based on several factors such as your credit profile, eligibility, and their internal policies – you can improve your odds of securing a lower rate by considering these practical tips:

Interest rates can differ significantly from one lender to another, so it's essential to research and compare multiple options to make an informed decision.

In addition to the interest rate, pay attention to processing fees, prepayment charges, and other associated fees and charges that may influence the overall cost of the loan.

Use an online personal loan EMI calculator, offered by trusted lending institutions like SMFG India Credit, to understand how different interest rates, loan tenures, and amounts affect your monthly EMIs. This helps you plan your finances effectively and choose a loan that suits your needs. You can compare different scenarios to find the best fit for your budget.

Strive for a credit score of 750 or above to facilitate faster loan approvals and increased chances of qualifying for a lower interest rate. Regularly check your credit report to identify and correct any errors or discrepancies that could negatively impact your score.

Maintain a credit utilisation ratio below 30% on all credit cards, as excessive utilisation can signal credit dependency. Additionally, ensure timely repayment of all EMIs and bills, as payment history significantly influences your credit score.

Your DTI ratio reflects how much of your income is already allocated to existing debt repayments. A lower ratio, reassures lenders that you can manage new debt payments without excessive financial strain, thereby improving your chances of securing a personal loan at a lower interest rate. To reduce your DTI, prioritise paying off high-interest loans first.

If your credit score isn’t stellar, consider adding a co-applicant – such as a spouse or close family member – with a good credit score and stable income. Such a co-applicant can strengthen your loan application and improve your chances of securing a lower personal loan interest rate.

A lower interest rate helps reduce the monthly payment burden as well as the overall cost of the loan, freeing up your finances for other priorities.

To improve your chances of securing a personal loan with a favourable interest rate, focus on maintaining a strong credit score, building a solid repayment history, and managing your DTI ratio wisely. Always research and compare offers from multiple lenders to make informed decisions, and apply only for an amount you can comfortably repay.