According to TransUnion CIBIL, personal loans showed a growth rate of 28% in the second quarter of FY 2019-2020. Personal loans are increasingly being viewed as a financial tool of choice for funding expenses. However, since no collateral is involved while availing one, the interest rates are usually higher than on secured loans like home and car loans. Therefore, before you apply for a personal loan, you should understand the different factors that affect personal loan interest rates.
The interest rate on your personal loan will be lower if you fall in a high-income bracket. The higher your income, the lesser are the chances of you defaulting on your personal loan. With a high salary, the loan provider will consider you to be more reliable.
The lender is liable to report any default that you make on your existing loans to the credit bureau. On the other hand, every timely payment positively reflects on your credit score. If you have been consistent with your repayments, your credit history will remain sound. This will help you enjoy lower personal loan interest rates.
When you work for a credible organization, you are viewed as a safe individual with a secured career and better ability to repay your debts. The higher the reputation and stability of the organization you work for, the lower will be the interest rate you are charged on your loan.
The nature of your employment is crucial in determining the rate of interest charged on a personal loan you apply for. Salaried employees and self-employed business owners are charged significantly different personal loan interest rates.
If you already have several ongoing loans and multiple credit cards, the Equated Monthly Installments (EMIs) you pay towards the repayment of such liabilities may eat up a portion of your salary. In such cases, you will be considered a high-risk individual. It can affect not just the interest rate you are charged but your personal loan eligibility as well.
Your customer relationship with the lender
Loyalty to the financial organization in the form of existing savings accounts, credit cards, other loan accounts, fixed deposits, etc., improves your chances of getting additional benefits and deals. You can leverage your status as a trusted customer and entice the lending company not to lose you as a client to a competitor. This can help you fetch competitive discounts on interest rates when you avail of a loan from them.
Before you apply for a personal loan, look around for the several deals and offers available in the market. Different lending organizations offer different interest rates and terms on personal loans. Researching online can be a good way to find the most suitable pick. You can also avail of Tata Capital personal loans for up to an amount of Rs. 25 lakh at an interest rate of 10.99% and ease your financial worries.