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Kolkata: Reserve Bank of India has announced a bonanza for borrowers. Between February and June, the central bank has slashed Repo Rate, the key policy rate of the country, by as much as 100 basis points or 1 percentage point. A cut in the Repo Rate has direct impact on retail loan interest rates. Since personal loans is the most popular of all retail loans, interest rates on personal loans are dipping with multiple banks slashing their RLLR (Repo Linked Lending Rate).

Repo Rate is the interest rate at which the central bank loans money to banks. As this interest rate comes down, banks have access to cheaper funds. To transmit the benefit to the common man and stay ahead in the competition, banks reduce lending rates. But how does a prospective borrower take maximum advantage of the declining interest rates? Let’s have a look.

How to ensure a favourable interest rate

High credit score: The first point is one has to main a high credit score. The credit score is done on a scale of 900 points and anything above 750 is considered very good for a favourable interest rate. All other factors remaining constant, an applicant with a higher score will get a lower interest rate. It signals how credit worthy the applicant is. One should monitor one’s credit report regularly.

Credit history: The credit history of an individual is very important. It contains whether there has been any default on payment of EMIs on past loans. Even delays in EMI payment impacts the credit score of an individual. So one should be careful not to delay or default in the payment of any EMI.

Stability of job: Personal loans are unsecured loans. Therefore, the key security of the lender is future cash flows of the borrower which is possible only when the borrower has a stable job. A stable job means lower risk for the lender. Therefore, they always prefer a government employee or a public sector employee or the employee of reputable big companies to sanction loans.

Lower fixed obligation: Banks look for what is known as good FOIR (Fixed Obligation to Income Ratio). In simple words it means that an ideal applicant would be a borrower who does not use a big share of his/her regular income to meet fixed obligations. The lower this ratio is, the better is the prospect for the applicant to secure a favourable deal.