Have you ever asked yourself why different banks offer personal loans at different interest rates? Yes! This is true even in this age where loans can be obtained quick and easy. A personal loan online is unsecured and so the interest rate that your lender charges, depends on various factors. The more favourable are these factors, the lower the interest rate of your loan will be. So, let us check out the 5 leading factors which can help you determine your loan interest rate.
- Credit score – Your credit score is considered important when it comes to the interest charged on your loans. Generally, a credit score of 750 or above is considered ideal by many lenders as it also indicates that you can avail a personal loan at a lower interest rate.
How can your credit score get affected? Several factors such as late/missed EMI payments of your previous loans, loan defaulting, etc., can hurt your credit score very badly. Sometimes, if you have a poor credit score, your loan may be rejected by banks, but there are a few lenders like NBFCs (Non-Banking Financial Companies) which also approve bad credit loans. So, conduct a better Google Search and find the best lender!
- Monthly income – Whether you are a salaried or self-employed individual, your monthly income plays a key role to get approved for a personal loan. This is a rule like – the higher your monthly income the lower will be your loan interest rate. This is because many lenders evaluate high-earning applicants as being less likely to default on their EMI payments.
For example – A lender may offer a personal loan at a high-interest rate of 13.6% if your monthly income is INR 50,000. If you are earning a monthly income of INR 1,00,000, then your interest rate will be 12%.
- Loan repayment history – Apart from your credit score and monthly income, your lender also verifies your repayment history, before deciding on the interest rate. If your lender gains confidence about your punctuality in handling your previous loans and EMI payments, then there are chances to offer you with a low-interest personal loan.
Ideally, lenders prefer to lend loans to customers who don’t default on their previous loans. If you had defaulted on your previous loans, then your lender might charge a hefty-interest rate or your loan application may even be rejected.
- Employer reputation – Another reason is the reputation of your employer matters! If you are working with an eminent or reputed organization, then there are high chances of getting a better deal of interest rate on your loan. The simple reason is, lenders, perceive employees from leading or reputed organizations, as they have stable jobs and are less likely to default on their loan repayments.
Few lenders determine the status of your organization if it is listed in “Top 1000 companies” or “Leading MNC companies in India”. On the other hand, if you are employed by a start-up organization, then your lender can likely charge you with a higher interest rate on your loan.
- Relationship with your lender – The final factor which can determine your loan interest rate is your relationship with your lender. If you have taken a loan earlier and repaid it responsibly, your relationship with the lender will be healthy. So, the lender can offer you certain discounts or special privileges on personal loans to maintain that relationship.
Conclusion
Now that you have understood the five main factors which are influencing the personal loan interest rate, it is recommended to compare the personal loans offered by various lenders and then choose the best that suits your requirements.
If waiting is not an option, then we can suggest you apply for a personal loan online with Flex Salary. Because they offer loans at competitive interest rates and you can still qualify for a loan even if you are having poor credit. Are you having any second thoughts? No, right! Then, apply for a loan with Flex Salary.
