A personal loan can be helpful when you need funds for unexpected expenses like urgent home renovations and medical emergencies. You can also use a personal loan for debt consolidation.
These loans are typically unsecured, meaning they do not require collateral, and are approved based on factors like income, credit score and repayment ability. While personal loans offer flexibility and quick access to funds, it is essential to understand interest rates, repayment terms and any associated fees before making a decision.
How Personal Loans Work
A personal loan is an unsecured borrowing for which you need not to provide any collateral or pledge any asset. Most lenders approve the personal loan applications on two important elements — creditworthiness and income of the borrower.
The personal loan could be cheap or costlier depending on the following factors:
- Interest rate: The percentage charged by the lender on the borrowed amount.
- Processing fee: A one-time charge for loan processing.
- Loan tenure: The repayment period affects your EMI (Equated Monthly Instalment).
- Prepayment charges: Fees for paying off the loan before tenure ends.
To get a cheap personal loan, you need to focus on offers that come with low interest rates and nominal charges.
Here are a few simple tips to avail cheapest personal loan.
Easy Tips To Secure Cheapest Personal Loan
1. Maintain a High Credit ScoreYour credit score plays a crucial role in determining the interest rate on your loan. A high credit score (750 or above) assures lenders that you are a responsible borrower, increasing your chances of getting a lower interest rate.
How To Improve Your Credit Score?
- Ensure pay all your credit card bills and EMIs within the due date. Failure to pay the credit card bills and EMIs will negatively affect your credit score.
- It’s advisable to keep credit utilisation low, preferably below 30% of the available credit limit.
- Avoid applying for multiple loans or credit cards in a short duration.
- Check your credit report regularly for errors and get them corrected.
2. Compare Loan Offers From Different Lenders
Interest rates and loan terms vary across banks, NBFCs (Non-Banking Financial Companies) and digital lenders. Instead of accepting the first offer, compare multiple lenders to find the lowest rate.
As interest rates form a major part of your total loan repayment amount look for the most affordable interest rate charged by the lender. Apart from the interest rate also check details about processing fees, prepayment charges and hidden costs before finalising a loan offer.
You can explore multiple loan offers through the Moneycontrol app and website for loan amounts up to Rs 50 lakhs. The interest rates for personal loans start at 10.5% per annum. You can apply for a personal loan offered by 8 lenders on the Moneycontrol platform through a 100% paperless process.
3. Choose a Shorter Loan Tenure
While longer loan tenures may offer lower EMIs, they result in higher interest costs over time. A shorter tenure helps you save on interest, making the loan cheaper.
Even though the EMI is slightly higher in the second case, the total interest paid is significantly lower.
4. Check for Special Offers and Discounts
Many banks and NBFCs offer special interest rates on personal loans during festive seasons, to existing customers, or based on employer tie-ups.
- Keep a watch on seasonal discounts from banks.
- Check if your salary account bank offers lower rates.
- If you work for a reputed company, you may get lower interest through corporate tie-ups.
Taking advantage of such offers can reduce your borrowing cost.
Banks often offer pre-approved personal loans to customers with a good repayment history. These loans come with:
- Lower interest rates
- Zero or minimal processing fees
- Instant disbursal
Lenders may try to sell insurance along with personal loans, increasing your overall cost. While loan protection insurance can be helpful, it’s often expensive.
- Ask for a breakup of all charges before signing the loan agreement.
- Decline any unnecessary add-ons unless they genuinely benefit you.
- Hidden fees can increase your loan cost, so always read the fine print before accepting the loan.
7. Use a Loan Against Fixed Deposit or Other Assets
If you have a fixed deposit (FD) or other financial assets, you can consider a loan against FD, gold, or shares instead of an unsecured personal loan. These loans typically have:
- Lower interest rates (since they are secured loans).
- Flexible repayment options.
- Quick approval with minimal documentation.
This is a great way to access funds at a cheaper rate while keeping your savings intact.
If you have a good relationship with your bank, a strong credit score, or an existing loan that you have paid on time, don’t hesitate to negotiate for a lower rate.
9. Balance Transfer for Lower Interest
If you already have a personal loan at a high interest rate, you can transfer it to another lender offering a lower rate. This process, known as balance transfer, helps in:
- Reducing interest costs
- Lowering EMI burden
- Saving money on overall repayment
Before opting for a balance transfer, check for processing fees and ensure that the savings outweigh the charges.
Instant Loans Up To Rs. 50 Lakhs
Moneycontrol has partnered with eight lenders to offer access to the most affordable personal loans. You can check your credit score for free and apply for personal loans up to Rs 50 lakhs through the Moneycontrol app and website. The interest rates start at 10.5% per annum and it’s a completely digital application process.
Step 1: Enter your details
Step 2: Choose a suitable loan offer
Step 3: Complete your KYC
Step 4: Set up EMI repayment
Step 5: Withdraw funds to your bank account
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
