Top 8 Aspects That Influence the Personal Loan Interest Rate

When you apply for a personal loan, consider the interest rates since it affects your EMI payments and overall amount.

Personal loans are now in a midst of a huge rally and are continuously showing growth towards meeting the need of the growing average Indian consumer for weddings, higher education, tuition fee, medical emergencies, etc. A personal loan may be tempting to several persons, but you should consider some points before applying for a personal loan. Quick loan processing online makes personal loans widely accepted to many people. Even after evaluating all the requirements for a personal loan, for making full payback the best personal loan interest rates play a major aspect in distressing your repayments.

The rate of interest in the case of home loans and car loans are more or less fixed, however, for personal loans interest rates may vary. The interest mainly depends on the individual borrower and the personal loan eligibility as decided by the lender. 

Therefore, it is better to understand the required particulars that can influence your loan interest rate. 

Following are some of the major factors that can affect your Personal Loan Interest Rate: 

1. Income    

Your income decides your personal loan interest rates. It is generally a norm that persons with high incomes have better reimbursement ability than persons with lesser incomes. 

2. Interest rates

Normally, a personal loan along with the accrued interest is paid back within the agreed time through equated monthly installments (EMI). The interest rate is a little higher if the loan is unsecured, in comparison with a secured loan when collateral is concerned. Banks offer an unsecured personal loan up to Rs. 25 lakh.  You can choose to avail yourself of payback of the borrowed amount within 60 months, depending on the personal interest rate fixed by the lender. 

Read Also: Use Of Personal Loan Interest Calculator To Calculate Interest Rate

3. Personal Loan Interest Rates

The interest rate is the amount charged by the lenders for availing the loan. The personal loan interest rate is calculated on the principal amount borrowed. Personal loans are charged a lower interest rate when compared with credit card debt. 

Some extra charges, such as processing fees, penal interest, EMI bounce charges, and document/statement charges are levied in addition to the interest charged on the borrowers.

4. Factors that play a crucial role in the Personal Loan Interest Rate

Certain factors play an important role in the interest rate levied by the Lenders, which is decided based on your Income. Normally, the higher and more consistent the income, the lower the interest rate charged on your loan.

5. Credit score

In the case of personal loans, credit score plays a very important role, as it not only decides whether the loan is approved but also affects the best personal loan interest rates. A higher CIBIL score of more than 750 increases the height of expectation in the borrower’s judgment of financial dependability, even supporting them to secure personal loans at lower interest rates. If a lender finds in your credit history your failure to pay, they will either charge you a very high rate of interest or might even reject your loan application. 

6. Debt to income ratio 

The ratio of all your debt payments divided by your total income is known as the “debt to income ratio”. Higher ratio points toward a higher debt burden on the borrower’s side, where the lender tends to charge a higher interest rate on the borrowed amount. By and large, a shorter tenure for repayment results in higher EMIs, while it reduces the total interest payable.

7. Employers’ status

The more renowned the organization that you work for the lower the interest rate applicable on your loan. Since borrowers employed by the well-known organization are found to be dependable for making timely salary payments.  

8. Relationship with the lender

Maintaining a good financial relationship with your lender can fetch your loan at attractive rates. If the lender notices any breach in your credit profile, they may reject your loan application. Because of their long relationship with each other, they foster inter dependability. When the lender sees your loyalty towards them, they are likely to offer you a more viable deal.

Conclusion

In-depth knowledge and awareness can enable you to work out details with your lender and strike a deal for a personal loan. You can approach the lender to help you check the eligibility for a personal loan utilising their eligibility calculator. 

Read Also: Know Easy Ways To Use An Interest Rate Calculator