What Are The Top Factors That Affect Personal Loan Interest Rates? - Loan Trivia


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Friday 5 August 2022

What Are The Top Factors That Affect Personal Loan Interest Rates?

If you are wondering how interest rates influence personal loans, the relation is quite simple. Personal loan interest rates are expressed as a percentage of the amount borrowed (principal). The majority of personal loans are unsecured, meaning they are not secured by a recoupable asset or collateral. Personal loans with no collateral have a higher interest rate than secured loans. 

Personal loan rates vary widely from one lender to the next, with the lowest rates reserved for those with excellent credit. Low-interest personal loans can be obtained from a traditional bank, an online lender, or a credit union, all of which provide an online application. A personal loan interest calculator helps you estimate the total interest a borrower has to repay on the principal amount.

Individual banks and lenders do not charge everyone the same interest rate. This decision is influenced by several factors. Personal loan interest rates are influenced by several factors:


Your income is the most important consideration when applying for a personal loan. The higher your income, the better your chances of receiving a personal loan with a lower interest rate. The bank must assess how easy it will be for you to repay the loan. The bank must trust its customers to provide them with a personal loan. This is only possible if their income exceeds a certain threshold.

Credit history

A lender will typically evaluate your CIBIL score to understand your credit history before approving a loan. The credit score is a three-digit numerical ranking that the Credit Rating Agency assigns to individuals based on their credit repayment history. A good credit score indicates that you will be able to manage the loan effectively and repay it on time.

Organization’s reputation

People who work for a reputable company have a better chance of getting low-interest personal loans. Banks believe that employees who work for reputable companies have a relatively stable career and will thus make regular payments.

Loan payment history

Before determining your loan interest rate, your previous repayment history will be examined alongside your overall credit score. If the bank or lending company sees that you have been punctual with your payments, the loan will most likely be offered at a low-interest rate. Customers who have not defaulted in the previous 12 months are preferred by most banks. Most loan defaulters have their applications rejected or have to pay a high-interest rate.

Banking relationship

You would be a loyal customer if you opened savings accounts and fixed deposits with your bank. Your loyalty may help you develop a personal relationship with the bank, which may result in lower personal loan rates. Because the bank doesn't want to lose you to a competitor, an existing relationship provides some leverage.

History of defaults

If a lender discovers defaults in your credit history, they will either charge you a very high rate of interest or reject your loan application, just as they would if they discovered your credit score. Most lenders prefer customers who have not defaulted in the previous year.

The interest rate on your loan is influenced by the six factors mentioned above. Before you apply for one, make sure that these factors are in your favor.


With the growing needs of the average Indian consumer, personal loans are now witnessing a huge rally and continue to show growth at an amplified rate. Even after evaluating all the adequate scenarios regarding your requirement for a personal loan, and also knowing that prospects look stable for making full payback of a potential personal loan, interest rates play a major factor affecting your repayments. Hence, it is commonly a good practice to know all the necessary details that will affect your loan interest rate. 

With low-interest personal loans, you can reduce the amount of interest you pay and the amount of time it takes to pay off the debt. You can make use of the personal loan interest calculator that is available online.

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