6 Factors That Determine Your Personal Loan Interest Rates
An online personal loan or instant loan for salaried individuals is an effective way to deal with unforeseen financial emergencies. Before you can avail an instant loan without documents at the lowest personal loan interest rate, you need to understand the factors that affect interest rates.
Let’s first see why an online personal loan is such a practical financial instrument. Personal loans are offered without collateral and can be used for any activity such as weddings, vacations, home renovations, etc. Online processing and instant approvals from reputable lenders like Bajaj Finserv have made personal loans very attractive and popular.
However, before applying for a personal loan online, you should do thorough research on interest rates and the factors that affect them.
Why are interest rates important?
Even a 0.5% difference in interest rates will greatly affect your total repayment amount.
For example, if you borrow Rs. 5 lakh for a term of 5 years at an interest rate of 13%, your EMI would be Rs. 11,377, and your total repayment amount would be Rs. 6,82,592. However, if your interest rate increases from 0.5% to 13.5%, your EMI will increase to Rs. 11,550, and your total repayment amount will increase to Rs. 6,90,295. As you can see, the slightest change in the interest rate of a personal loan can become quite expensive.
We will now discuss the 6 most important factors determining your personal loan interest rate.
1. Your income
Your monthly income strongly influences interest rates on instant loan for salaried individuals. When determining the interest rate, lenders consider how much you earn per month and whether your income is constant. They are convinced that you will be able to repay the loan if you have a regular and high income and thus offer you low interest rates. The situation is reversed if you have a low and irregular income.
2. Borrowings and existing liabilities
Having several simultaneous loans is not well seen by banks and credit institutions. Even if you have a high salary, it can be difficult to keep up with the repayments of several loans. Banks may offer you a personal loan at a relatively higher interest rate to protect their investment if this is the case.
3. Refund history
Banks check your credit history to determine if you have a default history. Your repayment history influences the interest rate of the personal loan offered to you. If you have a clean track record, you’ll get the most competitive interest rates, while your personal loan application will likely attract a higher interest rate if you’ve been a defaulter.
4. Your credit score
Your credit rating or CIBIL is paramount to getting the lowest personal loan interest rate from reputable lenders like Bajaj Finserv. Lending institutions pay particular attention to applicants with credit scores of 750 and above and offer them the best deals. If your credit score is below 700, your personal loan application may be rejected outright or you may be approved for a higher interest rate.
5. Your relationship with the lender
If you have a long-standing and cordial relationship with your current lender, it is possible to explore lower interest rate options with them. Indeed, banks and NBFCs offer their loyal customers interesting offers from time to time. If you are looking for a personal loan, contact your existing lender first, then move on to other lending institutions.
6. Your employer
It may surprise you, but most banks also score your personal loan application based on the reputation of your work organization. You will get fast and lowest approval personal loan interest rate if you are working with an established business or government organization. However, if you work for a start-up or are self-employed, banks may charge a higher interest rate on your personal loan.
Working through the many factors that affect your personal loan application is the right way to solicit a good offer from banks. You can use an EMI Loan Calculator to check your monthly repayments, total interest, and total repayment amount and determine the best term for your needs. Personal loan interest rates are determined by several factors, most of which can be improved upon. Once you meet the eligibility criteria established by the lenders, you can even negotiate a lower interest rate on your personal loan.
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