Do you need funds to cover your rental apartment’s security deposit? Or you are dealing with a medical crisis not covered by your health insurance. When you need access to immediate cash, a personal loan will come to your rescue. Personal loans have many benefits, including collateral-free applications, quick approvals and payouts, and no end-use restrictions.
A question that often arises is, what is the interest rate on a personal loan? Well, that depends on the lender you decide to go ahead with. A few factors play a pivotal role in deciding that.
5 Factors that Decide the Interest Rate on Your Loan
Here are the five factors that determine the interest rate of a personal loan:
Credit Profile
Your credit profile directly influences the interest rate for a personal loan, including your credit score and repayment history. Lenders consider you a reliable borrower if you have a credit score of about 750 or more in the region. A lower credit score can indicate trouble making your debt repayments on time.
Additionally, a tangible credit history in the credit report makes it easy for lenders to take a call. If you have a solid credit history, the lender will be more confident in you since you have a track record of timely repaying the outstanding on the borrower’s loan amount. Ticking these boxes without fail will portray you as a dependable borrower and allow you to negotiate a more competitive loan interest rate.
Repayment Capacity
Your repayment capacity is another point that decides the final interest rate on the personal loan. A considerable monthly income ensures you can repay the loan on schedule to the lender. Consequently, they could be more inclined to provide you with a personal loan with reduced interest rates.
To qualify on this parameter and get a low-interest rate, you can add all your income from supplementary sources, including rent and interest dividends.
Besides, a job with a reputed organization, be it the public or private sector, or a profitable business, you can get a personal loan at a low-interest rate.
Total Loan Amount
The loan amount you apply for also plays a pivotal role in determining the interest rate of your loan. Depending on your repayment capacity, the lender will check whether you can manage the EMIs and decide the interest rate.If you apply for a loan amount that is different from your monthly income, in that case, it will be challenging to get a lower interest rate. If you can do otherwise, you can negotiate a favorable interest rate.
Relationship with the Lender
If you already have a working relationship with the financial institution, you can apply for a personal loan against favorable terms. You have already proven your mettle as a borrower, and the financial institution trusts you to do the same again.
The lender’s familiarity with you may facilitate a quicker approval time. You may use an online EMI calculator to determine the best offer if you have many from the different lenders you have transacted with. If you want a clear idea of the interest rate for a personal loan for INR 20000 salary, this tool will greatly help.
Punctual Repayment
One of the most important considerations for lenders when determining interest rates for personal loans is your repayment history. Lenders will see your credit profile as low-risk for any loan, including a personal loan, if you have a strong payback history, demonstrating smart financial management, which boosts your creditworthiness.
If you meet this requirement without any hiccups, you can quickly negotiate a better interest rate on your loan. Apart from these five pointers, the market situation is vital in deciding the personal loan interest rate.
In Conclusion
Personal loans are effective in any financial emergency due to their hassle-free application, approval process, and other benefits. Before applying for a personal loan, it is ideal to review its interest rate, and if you want to reduce it, keep the pointers above in mind and plan accordingly.
