By A personal loan is an amount of money that you can avail from banks and financial institutions at a certain rate of interest. This fund can be used for any purpose as you wish. In addition, lenders give you the option to repay the loan in flexible instalments. In a nutshell, a personal loan can help you arrange funds in a short time without the need to furnish any collateral. However, the EMI amount you pay for the personal loan depends significantly on the interest rate. Therefore, to ensure that you get competitive interest rates on your loan, you must know the factors that affect it.
Here are the factors that affect the personal loan interest rates.
- Credit score
One of the significant factors affecting your interest rates is your credit score. Your credit score is an indicator of your past repayment history. Having a high credit score indicates that you are a reliable borrower and have repaid the loan timely in the past. If your credit score is high, you can get lower interest rates and even a high loan amount. However, if you have a poor credit score, the lender can charge you a high-interest rate. You must have a credit score of at least 700 to avail a personal loan.
- Income
Your income is a significant determinant of your eligibility and so, it also affects your interest rates. If you have a high income, it means that you have enough money to repay the loan timely. It also means that you are unlikely to default on the loan repayment. This assurance lowers the risk for the lender, so they can offer you a lower rate of interest. With a poor income, they can doubt your repayment capacity and charge you a high-interest rate.
- Job profile
Lenders consider your income stability to ensure that you will be able to repay the loan. Your job profile is an important determinant to find if your income is stable. If you have hopped jobs, it could mean that you do not have a steady source of income. Some lenders could consider you as an unreliable borrower charging a high-interest rate. If you are employed with a reputed organisation, you are more likely to get lower interest rates as it means you can make timely payments and are financially secure.
- Debt to income ratio
Debt to income ratio is the ratio of your total debt divided by total income. If you have a high debt to income ratio, it would mean that you are spending a significant part of your income on EMI payments. Lenders can charge you a high-interest rate in this case. You must keep your debt to income ratio below 50% to avail a personal loan at a lower interest rate.
Considering these factors can help you get a loan at low-interest rates. However, you must always know that you can negotiate your personal loan interest rates by leveraging your financial profile and credit score. Apply for personal loan, today.
