Personal loans are classified as unsecured loans, which means you don’t have to give the bank any security to get one. A personal loan application is the simplest because all that is necessary is a set of required documents, a decent CIBIL score, stable financial health, and a payroll account. However, personal loan interest rates highly depend on certain factors of the applicant. The personal loan interest rates can vary from lender to lender as it depends on the eligibility criteria defined by the lender and the required factors of the borrower.
Therefore, it is good to have knowledge about what are the factors that can affect your personal loan interest rate.
Personal loans with lower interest rates are more common among individuals with better salaries, according to lenders. The interest rate will be lower if your income is higher. Lenders perceive you to be a more reliable candidate if you have a greater salary because you are less likely to default on your loan repayments. Because a personal loan is unsecured, lenders rely on your income to ensure that you pay it back on time. As a result, one of the most important elements impacting your personal loan interest rates is your income.
CIBIL or Credit Score
The CIBIL score is based on your credit history and is a reflection of your creditworthiness. It is the most essential criteria considered by lenders when approving your loan or any other form of credit. The credit bureaus keep track of your credit history, which is the most essential aspect taken into account when processing your personal loan application. Lenders consider a credit score of 750 or more to be healthy, and if you have a poor credit score, your personal loan application will be denied. Therefore, you need to be ensured that you have a considerable credit score and if not, you better start working on improving your credit score and pay your dues in a timely manner.
Your job and the associated organization
Personal loans are unsecured because of which lenders look out for certain factors that ensure the borrower’s credit worthiness. If you are working in a reputed organization, it indicates that you have a stable job and you will repay the loan on time, which can increase your chances of getting a personal loan at best interest rates. A stable job and a reputed organization is highly considerable in getting the best personal loan interest rates.
Relationship with your lender
If you are a trusted customer of your lender having a long and loyal relationship, it is easier for you to get a hassle free personal loan as banks trust their stable customers more while giving unsecured loans. As you have an interpersonal relationship with your bank, it will not risk losing a valuable customer and hence, will offer you personal loans at attractive interest rates.
Debt to Income Ratio
A higher debt to income ratio indicates that you have been paying the majority of your income in debt consolidation. This proves to your lenders that you have excessive credit hunger and states that you are having too much debt already. Due to this factor, the lenders might charge you with higher rates of interest on personal loans.
The Bottom Line
Personal loans are the best options when you are in severe financial emergencies and you need funds instantly. Personal loans online are also available to ease the whole process of applying for personal loan. Online personal loans are completely hassle free to apply as you just need to fill out the application form on the lender’s website and submit the required documents. The lender will analyse your application and approve it. After the loan application approval, you can get instant disbursal of the loan amount. However, the most important factor is to conduct effective research before finalising the lender, examine your eligibility criteria, be ready with your documents and choose the best personal loan interest rates.