Some of the factors which impact personal loan interest rates are:
● Repayment History
Repayment history is a very important factor which lenders take into consideration for determining the personal loan interest rate. Your credit score reflects your repayment history and past financial borrowings and can be checked by lenders before offering you the personal loan. All the lenders report about the payments and defaults to the credit unions, which on the basis of these reports create the credit score of the borrower. Every lender, before approving the loan checks for the credit score of the applicants. A low credit score is not entertained by the lenders whereas a good credit score gets your loan approved instantly. Also, borrowers with a low credit score are offered personal loans at a higher rate of interest. Lenders use this technique to minimise their risk. On the other hand, a good credit score puts you in the negotiating position where you can avail a personal loan with a better rate of interest, thus saving you some money.
● Individual skills to negotiate
If you are an esteemed customer of your bank and have an account with them for a long time, then chances of you getting a personal loan from them are high. Good relationship and cordial terms with them allows you with the negotiating power for the best rate of interest, fees etc. You can ask for the special offers like a better interest rate and deals. Chances of you getting a good deal or some interesting offers are high if you negotiate well.
● Your income
Income is one of the key aspect considered by the lenders when approving the loan amount. It also significantly affects the rate of interest offered on the personal loan. An individual with high income (salaried or self-employed) will get a personal loan approved fast in comparison to individuals with low income. Income is considered by the lenders to get an estimate of the repaying capacity of the borrower. Individuals with higher income bracket are likely to repay the loan easily and on time and thus may get a better deal in terms of personal loan rate of interest. On the contrary, individuals with low income are usually offered personal loans at a higher rate of interests. Lenders do this to minimise their risk.
● Your Employer’s reputation
Your employer also plays a key role in getting your personal loan application approved and in getting you a better deal. The reputation of the applicant’s employer helps the bank to know about your financial security and repayment capacity. A stable and renowned organisation can get you a low-interest rate whereas a start-up or small company will get you a higher rate of interest. The reason is the fact that a bigger organisation is synonymous to a stable income.
● Loan Amount and Loan Tenure
The loan amount and loan tenure are the other two factors which determine the rate of interest offered on the personal loan. Lenders offer low-interest rate on personal loans with longer tenure and amount. Whereas a higher interest rate is charged on lower amount and tenure. Thus, it is advisable to take the personal loan for a longer duration.
● Your Debt to Income Ratio
Your debt to income ratio tells the lenders about the ongoing loans and credits which you have undertaken and not yet paid completely. This is a very important factor which determines your personal loan application approval. Even a good income or a reputed company cannot offer you a loan if you have other loans going on. Your Credit Score gives a detailed analysis of your financial history and a bad debt to income ratio means that you are already overburdened with the debts.
Thus, before you apply for the personal loan next time, consider the factors mentioned above to get the best deal in terms of loan amount and personal loan interest rate. Also, compare different lenders to make the best choice. LoansJagat offers every individual an excellent platform where they cannot just compare the personal loans from the best lenders but also choose the best loan which is custom made for them.
