A personal loan is an unsecured option that is simple to apply and avail. They are multipurpose loans, which can meet different personal reasons such as vacation, wedding, medical necessity, higher education, etc. Compared with secure options like a car loan or home loan, the individual loan interest rate is higher and begins from 9-10 % p.a. onwards.
Thus, before clicking on the personal loan apply button, it is recommended to consider different lenders and select the one providing the lowest rate so that your loan EMI is within your repayment capacity. Before this, it is crucial to understand a few factors that impact the individual loan rate:
Your credit score is a vital parameter lender considers when processing your loan application. Note that such data is maintained in the form of a credit report by credit bureaus. A credit score of 750 or more is considered suitable by the lenders, which enhances your loan eligibility chances. However, a lower score of below 750 has lower personal loan approval chances as lenders do not prefer it. Even if your loan is approved with a low credit score, your interest rate is considerably higher. Lenders keep their rates higher to compensate for higher credit risk in case of a lower score.
Higher-income equates to a lower rate of interest. Having a higher income means you may be considered reliable by the lenders because you hold fewer default chances on the loan repayments. On the contrary, if you have a lower income, the offered interest rate for a personal loan may be higher.
Your relationship with the bank
Being an old consumer, you hold some leverage because your bank would not like to lose you to another bank. Many of you maintain a savings bank account, fixed deposit, or recurring deposit account in a bank, making you a loyal customer. Owing to this loyalty, you tend to share an informal relationship that may fetch you not just attractive rates but also lower or nil processing charges when the requirement for a personal loan comes up.
Your employer’s reputation
The organization’s reputation you work with even plays an essential role in deciding your loan rate. The more stable and renowned your company is, the lower your loan interest rate. Lenders consider you to hold a stable career, which shows your potential to meet the debt on time.
Now, as you know the crucial factors that may affect your loan rate, the next step is to consider the rates of different lenders. Doing so would help you determine a prudent lender as per your suitability. Once you have selected the lender, use the personal loan EMI calculator to compute your EMI and tenure as per your capacity to meet the debt.