Monday, January 30, 2023

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Factors That Influence Your Personal Loan Interest Rates

A personal loan provides ample support when someone needs funds for a planned event or financial emergency. The application process is simple and quick, and one can complete it online without leaving their home or office. These loans’ convenient and paperless processing makes them quite popular among aspiring borrowers. However, the personal loan interest rate primarily determines an individual’s affordability. Lending institutions determine the loan interest rate based on several factors, including the ones mentioned in this article.

  1. Monthly Income

The applicant’s monthly income greatly influences the personal loan amount and interest rate. A decent income assures timely loan repayment and consequently attracts lower interest rates and favourable terms and conditions. A handsome salary means a lower risk of loan default, encouraging lending institutions to offer better loan terms. That is why most NBFCs have a minimum salary requirement to accept loan applications.  

  1. Employer’s Status

Usually, NBFCs provide personal loans to salaried professionals only due to their income stability. Working with a reputable enterprise or in a government department makes a pleasant impression on the lending institution. NBFCs believe such applicants to have a stable job and regular income, improving chances of timely loan repayment. So, the employer’s status is crucial in deciding the loan interest rate.

  1. Credit Score

A loan seeker’s credit score provides reliable information about the individual’s credit history and briefly explains their credibility as a borrower. Applicants with a high credit score get a lower personal loan interest rate than those with low credit scores. Online lending institutions like Clix Capital consider a credit score of 630 or above to provide personal loans at the best interest rates. 

  1. Repayment History

Apart from credit score, the applicant’s repayment history is another crucial factor determining the interest rate. Responsible borrowers who pay their EMIs on time get lower interest rates than ones who are habitual of missing their EMI payments. Paying the EMIs and credit card bills on time also builds credit history and improves the credit score. All these factors work collectively to attract a lower interest rate. 

  1. Financial Liabilities

If the applicant is already paying other loan EMIs and have high financial obligations to fulfil each month, managing them with limited monthly income might become challenging. Most lending institutions check the applicants’ existing financial liabilities to ensure they have the repayment capacity to handle one more loan EMI with their salary.

A high debt-to-income ratio increases the risk of default, causing NBFCs to charge a higher interest rate based on the risk involved.

Pro tip: Use a personal loan Calculator – a free-to-use online tool – that allows you to enter the required amount, repayment tenure and loan interest to calculate EMIs and budget your expenses accordingly. 

Keeping these factors in mind will make the loan repayment pocket-friendlier by attracting a lower personal loan interest rate. It helps a loan seeker borrow carefully and smartly while enjoying convenience and affordability. Check your loan eligibility today and pose yourself as a low-risk borrower to get the lowest interest rate from most lending institutions. 

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