Key Factors That Affect Your Personal Loan Interest Rates

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The personal loan is given to the people who need the amount to meet their personal needs such as medical emergencies, home improvement, vacations, wedding expenses etc. It is also a kind of unsecured loan in which the borrower does not have to pledge any property in order to secure the loan.

Aspects such as credit score and repayment history are assessed before loan approval. While personal loans may sound attractive, there are still many things to consider before applying for a personal loan. Indeed, the interest payable on a personal loan is likely to vary and depends on several factors such as the category of borrower and the eligibility criteria set by the lender.

Here are some factors to consider when taking out a personal loan:

Credit score

Obtaining a personal loan is highly dependent on having a good credit rating. The credit score basically means how likely you are to honor the loan repayment based on your financial situation. Essentially, this means that lenders would benefit from getting a clear picture of the borrower’s income, existing debt, repayment history, and borrowing behavior. Having a good credit rating, that is to say greater than 750, will indeed help to build trust between the borrower and the lender. Usually, a lower CIBIL score can also lead to a tedious loan securing process situation. In addition, lenders generally lower their interest rates for borrowers with good credit ratings.

Returned

This element is necessarily the most important because it alone can determine whether the interest rate of the personal loan should be lower or higher. Basically, income is directly proportional to a borrower’s chances of receiving a favorable interest rate.

Working people with higher income and stable paid employment are more likely to get a lower interest rate because it gives lenders the confidence that they will not fail to repay the loan. A higher interest rate is usually levied on low income people because the lender wants to mitigate the risk of default.

Debt-to-income ratio

Being an employee of a stable and income-generating company, plus having a good salary, demonstrates the possibility of non-failure in repaying the loan on time. The debt-to-income ratio is basically the ratio of all debt payments divided by total income. Therefore, the debt to income ratio plays an important role in obtaining a personal loan as it is directly proportional to the debt burden of the borrower when repaying.

Age

The borrower’s age may not seem like a big deal, but it does play an important role as it tells the lender how many years they have left in terms of working years. The preferred age range for providing personal loans from a lender’s perspective is 23 to 58 years old.

Current liabilities

The lender would certainly have a keen interest in knowing the current liabilities, if any, that you are assuming. This would give them a clear idea of ​​your repayment capacity while keeping your income in perspective.

Banking relationship

Being a loyal customer and having different types of accounts such as a savings account or a fixed account will also be a favorable factor in making you a trusted customer. This loyal banking relationship can also earn you an attractive personal loan interest rate. Most of the banks would never want to lose their loyal customer base and hence they would like to keep and offer all of their products to those customers in conjunction with more favorable items.

Default values

Any default on your past commitments can hurt you to get lower interest or even a personal loan. So be wary of failing to repay your current or past debts. The CIBIL score reflects poorly in the event of default, which has an impact on the chances of obtaining a personal loan or a good personal loan interest rate.

Employment status

Job stability also plays a primary role in getting a lower interest rate for a personal loan. In fact, most banks have a much smoother lending process when it comes to people placed with reputable businesses and businesses. It all comes down to the lenders’ confidence in the borrower’s ability to repay. The nature of the job can also have an impact on interest rates. For example, a salaried professional may be treated a little more favorably as opposed to an independent professional or a professional approaching retirement age may obtain the personal loan at higher interest rates.

With the exception of the factors mentioned above, other factors such as the length of the loan can also come into play when determining the interest rate for the personal loan. A short term loan. Moreover, all the factors suggest that one thing is that the reliability and trust of the lender is imperative to secure a reasonable rate of interest.

The author, Mahesh Shukla, is the founder and CEO of PayMe India. Opinions expressed are personal

First publication: STI


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