Personal Loan Interest Rates
Have you applied for a personal loan recently or you are in a process to apply for it, in such a situation, the thing that you should consider first is the Interest Rate on which your personal loan will be approved.
Interest rate plays a very important role in any kind of loan. It is the one decides the total cost of your borrowing. Moreover, the interest rate on which personal loan is offered is always higher than other loans. This is because the personal loan is an unsecured loan and lenders are at more risk as they don’t have any collateral or security to back up them.
A personal loan is offered by different banks, and interest rate associated with it also varies from bank to bank. Hence, it becomes very important to compare the interest rate of the leading public and private sector banks, before you go with a particular lender. However, the interest rate depends upon various criteria.
Moreover, different banks have different criteria in terms they offer the rate of interest for the personal loan. This criteria also differ based on whether you are salaried or self-employed individual.
Certain Factors that Affect your Personal Loan Interest Rates are:
Your Repayment History
Your repayment history says a lot and hence plays a very important role in determining the rate of interest for your personal loan. Lenders can check for your repayment history through your CIBIL. Basically, a CIBIL contains all the validation of your past financial borrowings (loans and credit cards). When a borrower makes payments for their loans, this is reported to the credit unions by the lenders. Similarly, when one defaults with the payments that is also reported to CIBIL. Based on these reports by the lenders, credit unions prepare the credit history of borrowers, known as CIBIL score. Before approving any new loan application lenders first check for the CIBIL score of the applicants. A low CIBIL is always considered bad and lenders are not willing to lend their money to such applicants. In some cases, applicants with a low CIBIL may get approved for a loan but the interest rate charged to them is always high in such case. This is done to minimize the risk involved to the lenders.
Therefore, try to have a clean slate in the case of repayments. A good credit score can ensure a reduction in the interest rates, which can save your money.
Individual Skill to Negotiate
If you already have an account from a long time with the same bank from where you have applied for a personal loan, then it is quite obvious that you are an esteemed customer of the bank. And if you have maintained a good relationship with the manager or the bank staff, then you can negotiate with the bank on interest rates, fees, etc based on it. Depending upon your negotiation skills, ask the bank for special offers or a reduced interest rate. It is possible that you may get the best deal- either a reduced interest rate of some interesting offer.
The income of a loan applicant significantly affects personal loan eligibility as well as personal loan interest rates.
A high-salaried individual is at a safer point for offering personal loans online as compared to the individual with low income. As per the lenders, the income of a loan applicant is directly proportional to the repaying capacity of the loan. The person with a high income is likely to be more capable to repay the loan as compared to the others with low income. Hence, to minimize the risk, lends may offer loan to a low salaried individual at higher rates.
Your Employer’s Reputation
The reputation of the employer with whom you work also plays an important role in determining your personal loan interest rate.
When you are employed with more renowned and stable your organization, you are charged a lower rate of interest for your personal loan. This is because banks consider employees of reputed organizations to have a stable career, hence a stable income. Similarly while working in a small company or start-up, when you apply for a personal loan the interest rate charged is comparatively higher, as the lenders consider that they don’t have much stable career and hence income.
The Tenure Period & Loan Amount
The tenure period & the loan amount which you decide for your personal loan also play an important role, based on which the interest rate for your personal loan. The higher the loan amount & tenure, the lower will be the interest rate and the same implies for vise-Versa.
Your Debt to Income Ratio
You may have a high income and maybe working with a reputed company as well. But what if you already have so many loans on you.
Let’s understand this with an example- Dheeraj is a young professional working in a CAT A MNC in Bangalore. His monthly salary is ₹ 1, 00,000. He applies for a personal loan and gets rejected for it. You must be thinking why so? His profile is good only, they why did the lender disapproved him for the personal loan.
This happened because of inquiring the CIBIL, the lender gets to know that Dheeraj is already having so many loans on him. He has an ongoing Home loan, car loan, personal loan as well as he has 2 credit cards which have a huge outstanding bill on it to be paid. In such a scenario, the total EMI which he is paying is exceeding 60% of his monthly salary. Hence the lenders consider lending to him risky stuff, as he may not be able to default with EMI as he is already overburdened.
Now you must be clear about the factors that affect personal loan interest rates. Hence when you consider applying for a personal loan check for the above-mentioned points before you apply. Also remember, different banks offer personal loan at a different interest rate, so don’t forget to compare them before you apply.