How to Choose Best Personal Loan at Low-Interest Rate?

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A Personal loan is a type of unsecured loan that one takes from a bank or any other financial institution to meet their personal needs. These types of loans are taken to meet any kind of financial need like buying a new car or financing a child’s higher education, medical contingencies, etc.

personal loan

This is called an unsecured loan because it is not secured against any asset. Since it is unsecured, the borrower does not put up collateral like gold or property to avail it, thus in case of any default, the lender cannot auction anything. Also, the personal loans interest rates are higher than home, car or gold loans. 

Eligibility Criteria to apply for a personal loan

To avail of a personal loan, one should have a regular source of income, whether you are a salaried/self-employed/professional. This criterion varies from bank to bank. Generally, the factors which are taken into account are the person’s age, occupation, income, place of residence, place of employment, Salary Slip for income proof, credit history and capacity to repay the loan. 

Some of the ways to get a personal loan at a lower interest rate are listed below:

Maintain a good credit score

A credit score shows your creditworthiness depending upon how you’ve managed your credit in the past. A preferred score of 700-750 makes you a worthy candidate to apply for a personal loan. Lenders decide repayment terms, loan amount and interest rates depending upon your credit score. So, it allows you to negotiate.

You can maintain a good credit score by:

  • Maintaining your credit utilization ratio (the ratio of your credit currently taken divided by your overall credit card limit) within the 30% limit.
  • Checking your credit card report at regular intervals.
  • Avoiding direct loan and credit card applications to lenders

Maintain a good repayment history

Clear off your debts and pay your credit card bills on time. Also, pay equated monthly installments (EMIs) of other loans on time. If your repayment history is good, then it gives you an upper hand while negotiating on interest rates with the lender.

Compare lenders to get the best offer

Loan applicants should consider visiting an online financial marketplace to compare and choose among several lenders offering personal loans. Also, it is advisable to check out with your existing lenders as they might offer you personal loans at a cheaper rate and better service terms.

Look out for seasonal offers

Often lenders notify the customers about their special offers through SMS and email. These offers can help you to get limited-period discounts on the interest rate. Banks often launch attractive schemes during the festival season, these schemes can cut down on your loan expenses.

Check interest calculation method

Before availing a personal loan, you are required to understand the method of calculation of the interest you are paying. As it might happen that despite a lender giving you a loan at a low-interest rate, you might end up paying a higher amount at the end of the loan period.


The lender can give you a loan at a flat interest rate or a reducing interest rate. In the case of the former, the payment of interest is calculated on the full loan amount throughout the tenure. But in the case of the latter, the interest is calculated on the outstanding principal, where EMIs gradually lower the principal amount. Thus, availing a loan at the flat interest rate could cost you more than availing it at a reducing interest rate.

The credibility of the employer

If you are working in a reputed or multinational company, you have more chances of getting favorable deals. It is because their employer’s ability to provide a steady job is high and the borrower would have a stable income and thus would be able to repay the loan dues on time. Your salary slip plays an important role to proof your employment and income proof to get loan easy. 

Your employment history

According to Satyam Kumar, Co-founder & CEO of LoanTap says that job stability, residential stability and maintaining a good FOIR (Fixed Obligation to Income Ratio) are some of the key factors that help one to get a good credit score and partly impacts the interest rates as well. 
Most of the time, the banks require you to have an employment history of two years, including one year with your current employer.

Lenders often prefer loan seekers employed with the state or central government, PSUs or quasi-governmental organizations. This is reflected in the interest rates as the government employees have the chance to get lower interest rates as compared to those who are not.
If you keep these above points in mind, then it won’t be difficult for you to get the best rate on a personal loan!