What factors affect personal loan interest rates?
Here are 5 crucial factors that affect your personal loan interest rates
Personal loans are one of the most versatile financing solutions as there are no restrictions on the use of the sanction. From your vacation expenses to the down payment on your home, you can benefit from a personal loan for almost any need. But before you jump into a personal loan, you need to make sure the cost is within your budget. This is where you assess your overall interest payment, which is determined by personal loan interest rates.
Personal loan interest rates are different among lenders and borrowers. Different lenders offer different interest rates on personal loans depending on your creditworthiness. Generally, with a good CIBIL score, you get nominal interest rates, which makes your personal loan more affordable. When deciding personal loan interest rates, lenders consider several factors. And the good news is that you can boost your credibility by improving certain factors that affect interest rates. Read on to find out what they are.
Your income helps the lender determine whether you are a subprime borrower or not. A high risk borrower has a high probability of personal loan default.
A high monthly income assures the lender of your ability to repay the loan on time. As a result, they may be more likely to offer you lower personal loan interest rates.
This is also one of the reasons lenders have a minimum income eligibility requirement for a personal loan. You can only apply for a personal loan if you meet this parameter. In addition to your income, your employer also plays a role in the interest rates offered to you. If you are working with a reputable employer, this indicates income stability, assuring the lender of your timely repayment potential.
Your repayment history is one of the most crucial factors that lenders consider when offering interest rates on personal loans. A good repayment record ensures that lenders consider your credit profile to be low risk for any new loan, including a personal loan. It also shows financial discipline, which increases your credibility. To better plan repayment, use a personal loan calculator to determine if the loan fits your budget by calculating various EMIs for different loan amounts and terms. You can also try automatic payment and reminders to ensure timely payments.
Association with the lender
If you have already made a transaction with a lender, they may offer you attractive interest rates for your personal loan. Indeed, lenders are likely to trust the borrowers whose financial records they hold and generally seek to retain their customers in this way.
Your relationship with the lender can also speed up the approval process. If you have multiple offers from different lenders you have transacted with, you can use an EMI calculator to find out which offer is the best.
Credit score or CIBIL
Your CIBIL score is one of the most important factors that help determine your creditworthiness. Lenders inquire about your CIBIL score before deciding on the terms of your loan. Your CIBIL score and your credit report contain all the information about your past credit behavior. A high credit score shows that you are a credible borrower and lenders can offer you lower interest rates for personal loans. This is why it becomes essential for you to boost and maintain your CIBIL score.
Economic climate and other market factors
Inflation, recession, repo rates, etc. affect the cost of your loan. When there is inflation, lenders offer higher interest rates on personal loans as opposed to lower rates during a recession. Low repo rates also translate into lower interest rates. This is the rate at which lenders borrow from the RBI; therefore, this has a direct impact on the personal loan interest rates available to you. Although these factors are beyond your control, you can, if possible, make the most of them by borrowing during a period of low interest rates.
You can make your personal loan repayment easier by considering these factors. You can also use an EMI calculator, also known as an interest rate calculator, as this tool gives you an estimate of your EMIs and repayment schedule. Based on this information, you can borrow smartly and carefully.
To enjoy affordability and convenience, consider Bajaj Finserv personal loan, which offers a high loan amount of up to Rs. 25,000,000. You can also get repayment flexibility with a tenure ranging from 12 at 60 months. Check your pre-approved offer today.