What Factors are considered to calculate the Interest Rate?

State of the Economy

In a country with a higher economical growth, many industries increase their borrowing capacity to meet various short-term and long-term objectives. Even the citizens increase their spending power in buying new essential gadgets and vehicles. However, when there is a drop-down in the economy, the demand for a personal loan for buying products decreases. This in turn affects the rate of interest on personal loans.

Government Borrowing

Government expenditure results in Fiscal deficit. This increases the government revenue, influences demand for money, and affects the prevailing interest rate.

Global Trends

Integration of the Indian economy with the global economy shifts the interest rate to support the foreign exchange rate. In order to attract global capital, the interest rates in India also rise and remain in sync with the global trends.

Credit Score

Borrower’s credit score is also one influencing factor for interest rates on a personal loan. If you have a good credit score, you have a chance of getting a personal loan at competitive interest rates. A low credit score creates a high-risk situation for the lender to approve the loan.

Loan Tenure

This a common factor influencing an interest rate. The shorter the tenure that is for 6 months or 1 year, the higher will be the interest, and the longer the loan tenure of 10 years or more, the lesser will be the interest rate as regular EMIs will be paid for a long time.

Use the interest rate calculator to easily calculate the interest in no time or go the manual way using the below simple interest formula:

Principal Loan Amount X Interest Rate X Total Number of Years = Interest
INR 2,00,000 x 5% x 5 = 50,000 is the interest for 5 years