Most borrowers think that low interest loans are meant for those who have high credit scores. But the truth is that even if you have a credit score of 600-700, you can get cheap personal loans if you know how lenders assess the risk.
It is not only the interest rate that makes a loan costly. It is also poor borrowing habits, inappropriate tenure selection, and not considering the hidden charges. This guide will help you understand how to select a cheap personal loan, what factors influence the cost, and how you can get cheap personal loans even with an average credit score.
Why Personal Loans Become Costly:
Borrowers compare only interest rates. But, lenders calculate the cost based on various parameters of risk.
Factors That Can Make Loan Costlier:
- High credit utilization
- Recent multiple loan inquiries
- Irregular income credits
- Unstable employment
- Existing EMIs
- Selecting very long repayment tenure
- Late payment records
Thus, two borrowers with the same credit score can get very different loan offers.
Lenders charge loans based on repayment behavior, not just credit score.
Step-by-Step Process to Get Cheap Personal Loans:
1. Reduce Credit Utilization Before Applying
It is always advisable to use credit cards below 30% of the limit for at least 45 days before applying for a personal loan.
Example:
Limit: ₹1,00,000
Spend: ₹75,000 – Expensive loan
Spend: ₹25,000 – Lower interest chances
This one step can help lower the interest rate on the loan by 2% to 6%.
2. Apply After Salary Credit
Lenders check your latest bank statement.
Applying immediately after salary credit shows repayment ability and improves approval pricing.
3. Choose the Correct Loan Amount
Borrowing more than required increases the risk category.
Smart Rule:
Take only what fits within 35% of your income as EMI capacity.
4. Avoid Too Many Applications
Every loan inquiry affects the lender’s confidence.
Bad approach:
Applying to 6 apps in one day
Good approach:
Compare first → Apply once
This is one of the most overlooked ways to get affordable personal loans.
5. Select the Right Tenure
Long tenure lowers EMI but increases total interest.
| Loan Amount | Tenure | EMI | Total Interest |
| ₹1,50,000 | 12 months | ₹13,600 | ₹13,200 |
| ₹1,50,000 | 36 months | ₹5,000 | ₹30,000 |
Hence, according to the table it is understood that applying for a shorter tenure loan option will give you a cheaper loan option.
Smart Ways to Avail a Personal Loan at a Low Cost:
Before you apply for a loan, try to improve your repayment behaviour at least 30 days prior to applying for a loan.
Here are some easy tips to start with:
- Make sure to pay all the EMIs on time and avoid missing any payments to have a good impact on your credit score.
- Before applying for a loan, go through your pending amounts and pay it then consider applying for a new loan. This will help the lender understand your repaying capabilities.
- Avoid using BNPL (Buy Now, Pay Later) services. This can make the lender hard to believe about your repayment capacity.
- Be a responsible spender and manage to keep a balance amount in your account. This will take you closer to approving your loan instantly.
Hence, recent actions are more trusted by lenders than past errors.
Apply With Income Stability Proof:
Even without salary slips, steady bank credits help.
Lenders check:
- Consistency of monthly income inflow
- Average balance
- Withdrawal of cash pattern
Borrow Smaller First, Larger Later:
Borrow a small loan and repay it successfully. The next loan will have excellent pricing.
This is how most borrowers qualify for cheap personal loans.
Cost Comparison: Good vs Bad Borrowing Behaviour
| Borrower Behaviour | Interest Offered | Loan Cost |
| Multiple inquiries | 22% | Expensive |
| High credit usage | 20% | Expensive |
| Stable income + low usage | 15% | Moderate |
| Clean 60-day history | 12–14% | Cheap |
Common Errors That Escalate Loan Cost:
- Maximum eligible loan taken
- Processing fees ignored
- Longest tenure opted
- Too many apps filled
- Full credit card limit utilized
- Applying immediately after EMI default
Just avoiding these factors can make an expensive loan a low-cost personal loan.
Practical Borrowing Example
Rahul has:
- Salary ₹32,000
- Credit score 665
- 2 active EMIs
He first:
- Reduced card usage
- Cleared small overdue
- Waited one salary cycle
- Applied for smaller amount
Result:
Interest reduced from 21% to 14.5%
Same profile. Different timing.
When Should You Delay Applying?
Postpone loan application if:
- You missed EMI last month
- Card usage above 70%
- Salary irregular for 2 months
- Too many inquiries recently
Waiting 30–45 days can save thousands in interest.
Final Thoughts
Getting cheap personal loans is less about having a perfect credit score and more about understanding lender behaviour. An average credit score does not automatically mean high interest, it only means lenders need reassurance about repayment reliability.
By reducing credit usage, avoiding multiple applications, choosing correct tenure, and applying at the right time, you can significantly lower borrowing cost. Most borrowers unknowingly increase their interest by rushing the process rather than preparing for it.
Always calculate the full repayment amount instead of focusing only on EMI. A slightly higher EMI with shorter tenure often results in a low cost personal loan overall.
Digital tools and comparison platforms like Olyv can also help borrowers understand affordability before applying, preventing unnecessary rejections and protecting credit health.
Borrow smart, not fast — that is the real way to secure affordable personal loans even with an average credit score.
I like how this breaks the myth that interest rates depend only on credit score and highlights behavior-based factors like utilization and timing of application. The point about reducing credit card usage below 30% well before applying is especially practical and often overlooked. It really shows how small habit changes can lead to noticeably cheaper loan offers, even with an average score.