Personal loans are unsecured loans that are quick to apply and easy to avail. These multipurpose loans can be used to deal with various personal reasons like wedding, vacation, higher education, medical emergency, etc. As compared to secured loans like home loans or car loans, the interest rate of a personal loan is higher and starts from 10.99%.
While applying for a personal loan, it is advisable to compare various lenders at Paisabazaar.com and choose the one offering the lowest rate so that your EMIs are affordable. Before that, it is important for you to understand a few factors that influence the interest rates.
- Credit score: Your credit history is the most important factor taken into account while processing your personal loan application and is maintained by the credit bureaus. A credit score of 750 or above is considered healthy by the lenders and if you have a low credit score, your personal loan application by not be approved
- Your level of income: Higher your income, lower would be the interest rate. With higher income you are considered as a reliable candidate by the lenders as you have less chances of defaulting on your loan repayments. Let’s say, if your income is Rs. 25,000 per month, the lender might offer you an interest rate of 14% and if your income is Rs. 70,000, you might get an interest rate of 12% from the same lender
- Repayment history: If you have a good repayment history, it will work well for you in terms of interest rates and loan approval. The lenders can see that you have been disciplined with your repayments and don’t hesitate to offer you a lower interest rate
- Defaults: If the lender finds out defaults in your credit profile, he will either charge you a very high rate of interest or might reject your application. Most lenders prefer customers with no defaults over the last 12 months
- Your relationship with the bank: Most of us tend to open our savings accounts and fixed deposits in one bank, thereby becoming the bank’s loyal customers. Due to this loyalty, you manage to share an interpersonal relationship that is likely to fetch attractive interest rates when the need of a personal loan arises. As an old customer, you surely have some leverage on your side as your existing bank would not want to lose out on a customer to some other bank
- Your organization’s reputation: The reputation of the organization you work with also plays an important role in determining your personal loan interest rate. The more renowned and stable your organization, the lower the interest rate on your personal loan. This is because banks perceive employees of reputed organizations to have a stable career, making them more responsible towards paying off the debt
Now, you know about the factors that might influence the interest rate, the very next step is to compare the interest rates given by various banks.