What Affects The Personal Loan Interest Rates?

[Shashank Bhaskar]

One of the loans quickly disbursed by most banks and non-banking financial companies today is Personal Loans. You can apply for them in the morning, and they get approved by evening be it any mode online – net or banking apps. You need not even visit the lender’s branch for application as the process gets done online with minimal documentation. Fill the desired form, attach the documents, and send the application. 

But it is the lenders who decide the amount and Personal Loan interest rates. These quotes depend on many factors, which are: 

Monthly income 

One of the important Personal Loan eligibility factors is your monthly income. This is your in-hand salary or the sum you take home after all the necessary deductions. According to the industry trends, those earning approximately Rs. 50,000 get charged high-interest rates while those earning between Rs. 50,000 to Rs. 1 lakh are charged lower. The lowest is possible when the income is Rs. 1 lakh and above. 

Employment status 

Lenders are interested to know about your employment status. This includes the period for which you were employed and the company reputation with whom you work. The interest rate on Personal Loan depends on how renowned your organisation is. This means lenders consider employees of reputed companies have a stable career and better chances of repaying the loan. 

If you are employed with such a company for more than three years, you have a chance of getting lower rates. 

Relationship with lenders 

Personal banking relationships also play an important role in deciding the interest rates charged. Your chances of getting the loan at lower rates increases if you have an ongoing relationship with the chosen lender. Opening Fixed Deposits with your bank or maintaining Savings Account with a minimum balance beforehand works in your favour. 

Your loyalty as an existing customer serves as a leverage, enabling you to negotiate the interest rates as lenders do not want to lose their business. 

Your credit ratings 

When you apply for Personal Loans online, you should provide basic but important documents to the lender. One such is your credit score. This provides the lender an insight into your repayment behaviour. Lenders can gauge how often you apply for loans, whether you defaulted on any in the past and if all were repaid within the tenure. 

They also assess how often you use your Credit Card, the limit utilised, and whether you are repaying the Credit Card bills timely. If the report ratings exceed 750 and more, you get lower interest rates.  

Loan amount and repayment tenure

Even if all the documents, credit score, and relationship with the lender are in place, there is one factor that affects the rate of interest on Personal Loan: the loan amount and tenure. The higher the loan amount and term, the higher the interest rates and vice versa.