Factors that impact the Personal Loan Interest Rate
Lifestyle and standard of living in urban cities have changed over the years. Most of the salaried individuals and start-up companies find it hard to survive & bear the expenses that come with improved living standards. A smart way out to fulfil your dreams and needs is to apply for a Personal Loan. It may sound simple nowadays to get a loan with instant loan apps, but many do hesitate thinking about the additional interest rate levied on each loan.
The interest rate can be fixed or fluctuating, depending upon the loan type and the financial firm or money lender offering the loan. A personal loan being an unsecured loan comes with a competitive interest rate which depends on the applicant’s eligibility criteria.
Key Factors Affecting Your Personal Loan Interest Rates
Personal loan interest rates depend on a few important things. If you take care of these, you may get a lower rate. Let’s look at what lenders check before deciding the interest rate:
1. Credit Score – Your Financial Reputation
Your credit score shows how well have you handled your credit card and loan repayments. When you pay your EMIs on time, it has a direct impact on your credit score. A high credit score can help you get lower interest rates.
2. Income and Employment Stability – Your Financial Backbone
A lender will check your occupation and income before approving your loan. A steady job/business with good income can get you a better rate or favourable terms.
3. Debt-to-Income Ratio – Balancing Your Financial Health
The DTI ratio shows how much you have to pay and how much you earn. If you have a lower DTI ratio, it means lower risk for lenders. A lower DTI also helps you get more favourable loan terms.
4. Loan Amount and Tenure – The Bigger the Loan, the Bigger the Risk
When you choose a longer repayment tenure, the overall payable interest increases. Also, taking a higher loan amount affects your EMI amount. It is advisable to borrow only what’s needed and choose a shorter tenure if possible.
5. Relationship with the Lender – Loyalty Pays Off
If you have a previous relationship with your preferred lender and you have been timely paying your loans, you can expect better rates and faster approvals. You may also be able to negotiate rates with your lender.
Also Read : Best Ways To Get A Personal Loan At A Low Interest Rate
How to Secure the Best Personal Loan Interest Rates
1. Improve Your Credit Score
You should make sure to pay your loan EMIs and credit card payments on time to improve or maintain your credit score.
2. Lower Your DTI (debt-to-income) Ratio
You can repay ongoing loans to lower your debt-to-income ratio and avail of a lower loan interest rate.
3. Compare Lenders for the Best Terms
You can compare loan offers from various lenders and agree on the best one prior to applying.
4. Add a Co-Applicant or Take a Secured Loan
You can add a co-applicant or opt for secured loans, which are usually available at lower interest rates.
5. Borrow During Festival Season
You can benefit from special offers during the festive season when the majority of lenders waive the processing fees or offer lower rates of interest.
Hence, if you are interested in the low-interest rate for a personal loan, manage your finances well in a way that gives a low-interest rate and easy loan approval.
Also Read : 7 Factors that can influence the interest rate of your Personal loan
Conclusion:
Knowing the factors that affect Personal Loan interest rates is important for getting the best deal. If you want to know how to check the interest rate on a loan, improving your credit score, reducing your debt-to-income ratio, and maintaining a good relationship with your lender can increase your chances of securing the lowest possible rate. So, use the tips mentioned in this blog to optimise your borrowing experience and take control of your financial future.
Frequently Asked Questions
1. Can I use a Personal Loan for any purpose?
Of course! A Personal Loan is an unsecured loan, so it does not restrict you from using it for any particular purpose.
2. What is the ideal credit score for a low Personal Loan interest rate?
Loan providers prefer applicants with a credit score of 750 or above to offer low interest rates.
3. How can I lower my Personal Loan interest rate?
You should work on increasing your credit score, reducing your debt-to-income (DTI) ratio and meeting the eligibility criteria of the lender.
4. What factors affect Personal Loan interest rates?
The rate of interest on a Personal Loan is affected by your credit rating, debt-to-income or DTI ratio, age, the loan repayment tenure you choose and your income.
5. How can I improve my credit score before applying for a Personal Loan?
You should ensure to make your loan EMIs and credit card payments on time to improve or maintain your credit score.
Disclaimer
The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented herein is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.
