Lenders set interest rates based on their cost of funds and their assessment of the credit risk of their loan applicants. The following are some of the most important elements that can affect your personal loan interest rates:
When determining interest rates, many lenders now use the borrowers’ credit ratings. Personal loans are offered at cheaper interest rates to those with better credit scores. As a result, you should aim for credit ratings of 750 or above.
Having higher credit scores requires good financial habits such as paying credit card bills and EMIs on time, avoiding several loans or credit card applications in a short period of time, and maintaining a low credit use ratio.
Higher income signifies a greater ability to repay the debt. As a result, the lender's credit risk is reduced. As a result, many lenders offer reduced personal loan interest rates to higher-income borrowers. However, if you are already repaying multiple EMIs through your income, then the interest rate imposed may be higher.
Those with good repayment history are known to present less risk to lenders hence, can avail loans with lower interest rates
When determining interest rates for personal loans, many lenders take into account the applicant's employment profile. Salaried people typically pay lower interest rates than self-employed people, owing to the former's stronger income security.
Because of their superior employment stability and income certainty, the government and PSUs typically offer lower borrowing rates to salaried applicants. Personal loan applicants who work for MNCs and reputable private sector businesses are thought to have a better chance of surviving economic downturns than other private sector organizations.
Existing Relationship with the Moneylender
Many lenders provide personal loans with low-interest rates to applicants who already have a banking or lending relationship with them. Those seeking personal loans should always inquire about personal loan offers from banks/NBFCs with which they already have a lending or banking connection.