7 Factors that can influence the interest rate of your Personal loanPersonal loan is an unsecured loan type available with a collateral-free feature. Hence, financial companies charge a higher rate of interest on personal loans to earn more profits in a shorter span of time. As personal loans do not demand any asset or property as a collateral so a fixed rate of interest is charged throughout the loan tenure.
For instance, if your monthly income is INR 40,000 or less then the lenders can charge 16% to 20% interest per annum. Whereas if your monthly income is INR 1,00,000 or above, then you can expect a personal loan at an 11.5%-12.5% interest rate per annum.
Before applying for a personal loan, it is advisable to compare terms with various lenders and opt for the one who offers the lowest rate of interest, so that your EMIs become affordable. Before that, it is essential for you to understand certain factors that influence the interest rate on a personal loan.
Here are 7 factors that will impact the interest rate for a personal loan:
- Credit Score-Your credit history is an important factor while processing a personal loan application, which is analyzed and maintained by credit bureaus. If your credit score ranges between good to excellent, the interest rate charged may be low, otherwise personal loan approval may get delayed or rejected with low credit scores.
- Employment status-Salaried or self-employed individuals can avail a decent interest rate based on their income stability. Government employees and women applicants are given the benefit of low-interest rates on personal loans.
- Level of Income-The higher the income, the lower your interest rate. The lender realizes your capability of paying off monthly dues on time and accordingly gives the personal loan approval. The lender may offer you a personal loan for a longer tenure on a low-interest rate and other discounted offers on the list.
- Relationship with the loan provider-If you are an existing customer of the financial institution, it may offer a low-interest rate based on the trust and credibility that you have shown for years. Maintaining a healthy relationship with your lender/loan manager will always be beneficial in the long run.
- Repayment History -The lender checks your payment history and the credit score you have earned through it. When the lender finds your repayment record is satisfactory, you can avail a slashed interest rate on personal loans.
- Defaults-A defaulter’s mark leaves a negative impact on your financial profile. The lender may either charge a higher interest rate or might reject your loan approval.So, avoid defaults in payment history to get a reasonable interest rate.
- Loan Tenure-This is another way out to lower your interest rate. If the lender charges a high-interest rate and you find it difficult to pay off monthly EMIs, a longer tenure canhelp to reduce your EMI for easy repayment.
Although the interest rate may vary from lender to lender. It is advisable that before you apply for a personalloan application;ensure to make a comparison analysis of interest rate with different lenders.
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