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5 Factors that Affect Personal Loan Interest Rate

Read to know how you can get the best personal loan interest rates.

November 30, 2021 / 02:24 PM IST

With a personal loan, you can enjoy the borrowing and spending freedom to meet all your objectives without any hassle. You can get your loan disbursals within a day and invest in home renovation, children’s education, medical procedures, and more. While it has become easier than ever to avail of small loans online, the personal loan interest rate is one of the critical factors you need to consider.

Getting a low-interest personal loan can make all the difference to your financial health now and in the future. There are many factors that affect the personal loan interest rates. While some are based on the personal loan eligibility terms set by the lender and on your credit-related actions, others are based on the market conditions. Read to know how you can get the best personal loan interest rates. 

Your Income and Existing Debts

Regular income and a clean credit history are two key factors that will help you get the best deals for a personal loan. Lenders consider these factors in determining your ability to pay timely EMIs. If your income is relatively low or irregular, lenders may still offer a loan but at a relatively higher interest rate to cover their risk. Check the minimum income criteria set by lenders based on your residence, and make sure to meet them before you apply.

If you have any existing debt, your lender will consider it while processing your loan application. With a part of your income going into servicing them, you may be offered a lower loan amount or a higher interest rate. That said, as long as your debt takes up less than 40 percent of your current income, you should be able to get a competitive rate.

Your Employer and Type of Employment

Aside from your credit history, the firm you work for also impacts your personal loan eligibility terms and interest rates. This is because lenders can then rely on your employer to make timely salary payments. Working for a company that is not financially sound or has been irregular in paying salaries can result in a higher interest rate for you or an outright rejection of your loan application. Salaried employees working full time also get lower personal loan interest rates than part-time professionals.

 Your CIBIL Score

Your credit score, also called CIBIL score, reflects your performance for repayment of previous loans and debts. It documents your credit history with which lenders can gauge your creditworthiness. The score reflects whether you have made timely repayments in the past and thus determines the risk you pose as a borrower. Usually a CIBIL score of 750 is enough for you to get approval for an affordable personal loan. With a higher credit score, you can negotiate to get a lower personal loan interest rate.

 Your Relationship with Lenders

These days, you get small loans without any collateral, with ease. For a larger sanction, an established relationship with your lender puts you in a better position to get a low-interest personal loan. Based on your existing profile in their database, lenders may offer you better deals for a more pocket-friendly experience. However, this depends on how disciplined you have been with repayment in the past. If you have repaid previous debt on time, you can get personalised pre-approved offers that simplify applying for a loan.

 Repo Rate and Market Conditions

The repo rate is the rate at which the Reserve Bank of India lends money to India’s banks and other financial institutions. If the RBI decreases the repo rate, you can borrow loans more affordably as personal loan interest rates are likely to reduce too. While this aspect is outside your control, depending on domestic and foreign financial market conditions, you can borrow when the repo rates are low. For instance, at 4 percent, the current repo rate is lower than it has been in a long time. This makes it an opportune time to get a low-interest personal loan.

Knowing different factors affecting personal loan interest rates, you can make an informed borrowing decisions. One of the best options is to go for the Bajaj Finserv Personal Loan. Apply online by filling in a simple form and get up to Rs 25 lakh at a nominal interest rate. You can qualify by meeting simple eligibility criteria and enjoying instant approval. Receive disbursal within 24 hours and enjoy zero limits on how you utilise the funds. To get a low-interest personal loan and ensure a quick approval, check your pre-approved offer and apply online.

Moneycontrol journalists were not involved in the creation of the article

first published: Nov 30, 2021 02:22 pm
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