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Factors That Affect Your Personal Loan Interest Rates
Posted on Wednesday, September 7th, 2022 | By IndusInd Bank
Personal loans provide great support when you need funds for a financial emergency or a planned event like a wedding, vacation, or home renovation. The application process for a personal loan is quick and simple. You can also choose to apply for a personal loan online. The process is 100% paperless and convenient. As a result, personal loans are quite popular among borrowers. However, the interest rate determines the affordability of a personal loan. The higher the interest rate, the higher the EMIs. Personal loans have a higher interest rate than other loans because the bank does not keep anything as collateral. The interest rate for a personal loan is not the same for all borrowers; it can vary depending on the borrower’s profile.
If you’re planning to apply for a personal loan, you should be aware of the factors that influence your interest rate. Here are some major factors that can affect your personal loan interest rates.
Monthly Income
Your monthly income has the greatest influence on your loan amount and interest rate. A higher income means a lower risk of defaulting on a loan. It provides the lender with the assurance of timely loan repayment, allowing the bank to offer a low interest personal loan.
Credit Score
Your credit score provides information about your credit history and a brief explanation of your reliability as a borrower. A high credit score indicates that you are a responsible borrower who is good at managing your finances. A borrower with a credit score of more than 7.50 can get a low interest personal loan than someone with a low credit score.
Company’s Portfolio
It makes a good impression on the lender if you work for a reputable company or in a government institution. Lenders believe you have a steady job and will be able to repay the loan on time. This factor plays a crucial role in lowering your rate of interest.
Loan Repayment History
In addition to your overall credit score, your previous repayment history will be examined before deciding on a personal loan interest rate. If you are a responsible borrower who pays EMIs on time, the bank will likely charge you a low interest rate on your loan.
Liabilities
If you’re already paying off another loan, such as an education loan or a home loan, the lender will want to make sure you have enough money coming in each month to repay the personal loan. Too many liabilities increase the risk of loan default, so lenders will probably charge you a high interest rate.
Previous Defaults
When a bank discovers loan defaults in your credit history, the risk to the lender increases, in this case, the lender will either reject your loan application or charge you an extremely high interest rate.
Borrower and Lender Relation
If you’ve been a regular customer of a bank for a long time and are thought to be trustworthy, the bank is likely to offer you a low interest rate. Long-term trust and responsible behaviour on the part of the customer can lead to an interpersonal relationship with the bank, which could result in a low-interest personal loan.
Understanding these factors in depth can help you negotiate with the bank for a low interest rate on your personal loan.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.