While these advertised rates may look attractive, they are not for everyone. Most lenders offer the best rates only to salaried women borrowers with the desired credit score. Similarly, there may be other criteria you may have to meet to get low rates. Here are a few things to consider before getting lured by advertised rates.

Eligibility criteria

It’s important to check the eligibility criteria of banks. SBI, for example, offers the lowest rate of 6.90% to salaried women who want to avail a loan of up to 30 lakh if the application is made through the bank’s YONO app. For salaried men looking for a loan up to 30 lakh, the rate is 6.95%. If the YONO app is not used, the rates are 5 basis points (bps) higher. One bps is one-hundredth of a percentage point. For a non-salaried borrower, the rates are 15 bps higher. Such information is available on lenders’ websites.

These are floating rate loans wherein the interest rate changes depending on the Reserve Bank of India’s policy rates. Most significant lenders don’t offer fixed rate loans.

“Lowest rates depend on many factors, including age, gender, income, credit score, property value, location or city of the project, and so on. All of these conditions are not highlighted in the advertisement. Thus, a customer should check his eligibility across multiple banks before making a decision,” said Raj Khosla, founder and managing director, MyMoneyMantra.com, a financial services platform.

Credit score matters

Interest rates may also vary according to a borrower’s credit profile. Lower the credit score, higher will be the rates. Apart from this, banks can also charge a premium to some borrowers.

For example, if a male borrower is looking for 30 lakh loan and requires a loan of up to 80% of the property value (LTV or loan-to-value ratio) from UBI and his credit score is over 700, the best rate he can get is 6.85%. The rate will be 6.90% and 7.15% for those with scores of 600-700 and below 600, respectively.

“Banks generally charge a premium of 25 bps from borrowers who don’t have a credit history,” said Aditya Mishra, CEO, Switchme.in, a home loan balance transfer platform.

Some of the banks adopted a stricter lending policy in the wake of the covid-19 pandemic, increasing the credit score requirement and the risk premium. Bank of Baroda (BoB), for example, until July, offered lowest rates to those with a minimum Cibil score of 726. Now, to get the best rates, a score of 775 or more is needed. But due to the festival season, some lenders have started relaxing their eligibility criteria to pre-covid levels. “They have more clarity about the repayment capabilities of borrowers as the moratorium period is over. During the moratorium, even if borrowers didn’t repay the loan, RBI had asked credit bureaus not to classify them as delinquent, which made it difficult for lenders to assess applicants,” said Mishra.

Some lenders, especially public sector banks, provide rates based on credit scores on their websites.

Bank or NBFC?

Banks are more transparent as loan rates are now linked to an external benchmark rate. Most banks have opted for the repo rate as the benchmark. Loans from non-banking financial companies (NBFCs) are linked to the internal benchmark, the prime lending rate (PLR).

“The movement in bank rates, which are dependent on an external benchmark, are more transparent for customers. NBFCs are free to change their PLR without any constraints, and their rates are entirely based on internal policies. NBFCs are, however, more flexible in offering tailored products with softer eligibility criteria as compared to banks,” said Khosla.

Limit your options

No two lenders will offer you the same rate or loan amount as their evaluation criteria will be different. However, to check out the best deal, don’t apply with different lenders at the same time. “If you begin the application process with multiple banks, you will start multiple loan queries at the same time. Credit bureaus capture each hard enquiry for loan or credit card, and this could negatively impact credit scores,” said Khosla.

Instead, a borrower can research the lenders’ website or try out online loan aggregators. Shortlist one or two lenders where you are likely to get the best possible rate and then apply.

The interest rates are low at present but don’t fall for the advertised rates from lenders.

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