"Low and attractive personal loan interest rates", "no payments for 3 months"- banks use all kinds of marketing slogans to lure their customers. During festive seasons such as Diwali or Christmas, they also roll out special loan schemes and offer interest rates lower than standard. However, do you always get the same interest rate as advertised? The truth is- "no".
In an ideal world, everyone would get the same interest rate on the same loan. However, in the world we live in, that's not often the case. You may or may not get the exact same rate as printed on the brochure because of the following reasons:
Your credit history is the biggest influential factor in determining the interest rate you will get on a particular loan. If your CIBIL score is above 750, which is the threshold for a good score, then you can easily get the interest rate as advertised. However, the lower your score gets from this mark the higher is the possibility of you getting a low interest rate. In fact, to get a loan for low CIBIL score can become a challenge in itself.
The system works in reverse too. So, if your CIBIL score is excellent (above 800) then you can negotiate with your lender and get an even better interest rate than standard.
Personal loan interest rates may not vary that much when comparing "what you see" and "what you get", but if you are looking for a home loan, then it can be a completely different ball game. The reason- loan worth.
Personal loans, two-wheelers loans are generally just a few lakhs worth. However, real estate is expensive, and thus a lender has to take a bigger risk. Thus, if you are not in a state to offer collateral then you will get a higher interest rate than what the lender typical offers for a home loan.
Most banks consider a variety of factors other than the credit history of a loan applicant itself. For instance, your income, whether you are a salaried employee of a businessman, account balance, status of other loans (if any), etc. all contribute to the risk factor and hence affect the rate of interest you get on a loan.
If you think finding a loan for low CIBIL score is something to worry about as it will not allow you to get attractive interest rates, then you will be disappointed to know that there's more.
While the principal amount and interest rate of a personal loan or home loan are certainly the biggest costs you have to deal with, there are a few other costs that many people overlook or are unaware of. These are:
At the time when your home loan is sanctioned, a processing fee is levied on the loan amount. It is usually about 0.25% to 0.50% of the entire loan amount. While the figure may seem small, it can be a lot in case of large loans.
Not all banks charge prepayment fee, but many do. A prepayment fee is what you pay when you pay off your loan before the end of term.
When you decide to pay off a loan earlier you get to save money on the interest amount, but it's the amount that the lender loses. Thus, they make up for it by charging a prepayment fee.
Banks impose heavy penalties on late payments. However, did you know you may have to pay a higher rate of interest for the same? For instance, ICICI bank charges a 24% interest rate per annum for late payments, which can be a lot.
When you are young and have just started your career, big investments such as a home or a car can be out of your budget range which is why getting a loan is a good idea. However, to get the best possible deal take your time comparing personal loan interest rates, etc. If you are unable to get a good interest rate, check your CIBIL score. If it's not up to the mark, make efforts to improve it. You can easily get a better rate with a better score.