Ever imagined why are you paying more on a personal loan than your office buddy? Folks, it’s the varied interest rates that make a huge difference in the end. The difference in rates may be just 2% but could turn out to be massive by the time the loan ends its run. Yes, you read it right! The overall interest outgo is likely to be much more than you could think of even with a 2% higher interest rate.
So, the focus should be to grab an effective rate deal so as to lower the interest burden while also meeting the personal needs at the same time. There are many factors that affect personal loan interest rates, of which the top four are highlighted in this article. So, without any further delay, let’s check out those factors.
The income you earn today would go a long way in influencing the interest rates charged on your personal loan. A greater income instills confidence among lenders to offer lower rates compared to those with lesser earning. The confidence stems from the fact that a higher income often leads to healthy repayment potential, further leading to a reduction in the rates.
You must know that a lender checks your credit history before approving a loan application. The history, which represents your credit behaviour, gives a status of your ongoing and past loans and even the credit card dues. You may get an approval for the loan with a good credit score of 700 and above, but a blot in your credit history can weaken the chances of getting lower rates. So, if you are already servicing some debt, make sure to keep up the good work of paying the dues on time. This will help you fetch attractive deals that can help save substantial chunk to build on further.
You may have an existing relationship with the lender where you want to file your loan application. If that is the case, you can get the rates lowered provided the relationship is smooth.
The kind of organization you are employed at or the type of business you are involved in will greatly decide the interest rates applicable to your case. If you are working in a company of strong repute and goodwill, chances of getting affordable deals are much more than those working in a less known firm. Similarly, lenders would give more weightage to self-employed involved in stable businesses rather than those running enterprises that are mostly dependent on seasons.
The impact of rates can be best gauged via personal loan EMI calculator. The function of the calculator, to a greater degree, depends on the interest rates. Greater the rates more the EMI and the overall interest repayment and vice-versa. Besides interest rates, there are two more factors that also influence your repayment.
These are loan amount and tenure. All three - loan amount, the rate of interest and tenure - when put in the calculator would show the indicative EMI, which combines a portion of both interest and principal repayments to be made every month. You can also check out the amount of interest payable with the calculator, which is accessible online.
Vikas Das, a noted finance writer, has expressed his thoughts on the factors that influence the lenders to offer varied interest rates on personal loan. The article demonstrates the point-to-point approach that lenders adopt while deciding on the rates.