In times of crisis or financial need, a personal loan can come to the rescue. As there is no collateral, this unsecured loan can serve as a huge relief and take some financial burdens off your shoulders. With minimal documentation, quick approval as well as disbursal, more and more people are turning to personal loans as a solution to their financial crises. However, the personal loan interest rate and associated charges differ from one lender to another. A solid understanding of the factors that influence your personal loan interest rate is essential. Read on to know more about these factors to find the right interest rate and repayment plan for you.
Which Factors Affect Your Personal Loan Interest Rate?
Multiple factors influence the interest rate on a personal loan. A thorough understanding of these factors can be very beneficial in the long run. Here are the factors that have a significant impact on the interest rate
- Repayment history: If you have been consistent and punctual with past repayments, this shows the lender that you are reliable and can repay the loan in a timely manner. It eases the lender’s worries about possible defaults and improves your chances of getting a good rate on your personal loan.
- Stable income: Income stability is an assurance to the bank or lender that you are capable of repaying the loan in the stipulated period of time. Moreover, higher income fetches better loan and interest rate options.
- Relationship with the lender: Some banks greatly value their relationships with pre-existing customers, and may offer lower interest rates. Having a savings account from the same bank that is lending you money can work in your favour.
- Credit score: Higher credit scores indicate strong financial discipline. A credit score of 750 and above can fetch greater loans at lower interest rates. Borrowers in the range of 700-749 may get the loan but with fewer benefits. Borrowers in the range of 650-699 indicate bare minimum financial discipline and are typically considered a risk. Following that, a credit score range of 550-649 predicts very poor chances of getting a loan approval. Hence, a good credit score can go a long way in helping you financially.
Tips For Availing Low Personal Loan Interest Rates:
- Ensure that you have a good credit score of 750 and above
- Maintain a consistent repayment history
- Maintain a good relationship with the lender
- Scope out the market and compare loans and interest rates
- Keep an eye out for offers or discounts
- Factor in employer’s credibility when you apply for a personal loan
- Be particular with your employment history and income stability
- Calculate the interest rate personally to know if you are getting a good deal. You can use online EMI or interest rate calculators on the lender’s website.
Conclusion
Keeping in mind the various factors that can influence your chances of getting a good interest rate on your loan, you can compare different options to find the best fit. The winning feature of personal loans is the freedom to use the loan for any purpose you want. Utilize this knowledge to score the best possible rate of interest and make the most of your personal loan!
