Do you want to get personal loans? You can use personal loans to meet various needs, from marriage expenses to buying a home or medical emergencies.
What interest rates are offered by the lender on apersonal loan? There are many factors considered to calculate the interest rate possessed by lenders while providing you with a personal loan.
This article covers all factors that affect the interest rate of personal loans. If you also apply for a personal loan, you should be aware of such factors.
A credit score of borrowers indicates creditworthiness and complete financial health. It is important not only to calculate interest rates but also for approvals. The range of credit scores is 300-800.
If you have a low credit score that does not exist in this range, then your loan application may reject by a lender, or they will provide you personal loan at a high-interest rate.
2. Existing debts
A lender always considers the existing debt of a borrower before providing a personal loan. They calculate the interest rate of a personal loan based on your existing debts. If you have major debts, your borrower profile seems risky to the lender. It affects the chance to secure competitive interest rates.
On the other hand, if you have fewer existing debts, you may get a low personal loan interest rate.
3. Default history
A default term shows the number of times borrowers fails to make monthly loan or credit card Payments. Before approving your loan requests, the lender always checks your default history. They take a close look at the borrower profile to decide the interest rate according to your default record.
If you do not have a default record, it means you can make the timely loan payments previously, and then you can get this time personal loan also at a low-interest rate. Simply, a borrower with good payment history has more chance to get a low-interest rate personal loan.
4. Lender relationship
Your relationship with the lender decides whether you get a personal loan at a high-interest rate or a low-interest rate. If you have had a good relationship with a lender for a long time, then you can get a personal loan at a low-interest rate and vice versa.
The best thing is that if you build a well-established relationship with the lender, then you can easily negotiate with them on an interest rate of the loan and reduce it more.
5. Repo rate
The current repo rate also affects the personal loan interest rate. This is the rate at which lenders lend money to another lender. If they reduce the repo rate, you can get a personal loan at a low-interest rate.
So, these are all the important factors that affect the interest rate of personal loans. Keep aware of such factors while getting personal loans. It will help you to make an informed decision.
Moreover, there is a free online tool available, a personal loan EMI calculator, that also helps you to determine the interest rate posses by the lender on the loan.