When you go to apply for a personal loan online or before you even check your personal loan eligibility, make sure to check the personal loan interest rates offered by the chosen lender. There are a few factors at play, which have a combined effect on your personal loan interest rates. Go through these below:
Income has a direct bearing on your repayment capacity. Lenders perceive less risk with high-income individuals and hence may offer better personal loan interest rates. The contribution of this factor is comparatively more due to the unsecured nature of these loans. A housing loan is backed by a property, a car loan is secured with a vehicle, but personal loans do not have any security. Hence, monthly income assumes paramount importance in the case of personal loans.
- Employment status
Employment in a reputed organization increases your perceived repayment capacity due to the association of a brand with you. Employees working in organizations of repute tend to have a stable income and hence debt servicing ability. Many lenders have corporate tie-ups with big organizations wherein their lending norms are relaxed for the employees.
- Credit score
A credit score reflects your creditworthiness. In the case of personal loans, the weightage given to credit score is quite significant as it has a direct bearing on the personal loan eligibility and personal loan interest rates. Greater the score, greater the trust by the lender in the borrower’s repayment ability. A credit score of 750 and above is considered ideal by lenders.
- EMI NMI ratio
This ratio calculates what portion of your net monthly income goes into paying the EMIs for existing liabilities. The personal loan EMI calculator will calculate to help you find out if there is room for additional loans in your current income. This will affect the personal rate too.
- Payment history
The payment history of your existing loans is an important indicator of your creditworthiness. Whether you have been diligent in your payments or have delayed them, the score will be impacted accordingly. However, a few lenders offer personal loans despite bad payment history, however, keep in mind that these will come at a higher interest rate.
- Age of your oldest account
However, it makes sense to consolidate your credit accounts; opening new accounts to avail offers shows that you are living beyond your means, leading you into a debt trap. This may translate into a low credit score, which in turn can lead to higher personal loan interest rates.
- Lender-Borrower relations
When lending to a customer who has been loyal, it is easier to discuss negotiations. As a borrower, take this opportunity to opt for a personal loan with an existing lender to be able to get lower loan interest rates. As they are aware of your repayment capacity, your credit and default history, it is a good chance to get better deals.
To Sum up
Before you decide to go for a personal loan, apply online and check your eligibility with the available personal loan calculators. As a prospective loan applicant, you can use the above-listed factors to negotiate with lenders for better personal loan interest rates.