Availing of a loan from a bank that offers a low rate of interest on personal loans is a great financial deal. Surprising as it may sound, the rate of interest is not only determined by the bank but also by its customers. Certain factors like income level and credit history affect the interest rate. Moreover, there are factors like inflation and economic growth that also affect the personal loan interest rates.
Following are four factors that affect the personal loan rate of interest for individuals.
- Income Level
When you apply for a personal loan online, one of the most pivotal deciding factors is your level of income. Your income and the rate of interest charged are inversely proportional. This is because; personal loans are unsecured loans, wherein you do not give the lender any kind of security against your loan. Under such circumstances, the only way a lender can trust that you will repay timely is by gauging your income. It is perceived that a higher income would allow you to repay the borrowed amount easily. Thus, you may even be charged a lower rate of interest. On the other hand, individuals with lower income levels are likely to be charged a higher rate of interest.
The company you work for does play a major role in deciding the rate of interest bank charges on your loan. Banks are more likely to grant individuals who work with a reputed firm a lower rate of interest. This is because lenders look at reputed firms as well-established and stable. This is turn reflects your job stability and the ability to pay back loans easily. On the other hand, if you are employed with a start-up or a relatively smaller firm, the interest rates charged would be higher.
- Credit history
While applying for a personal loan online, it is important to make sure that your credit history is clean. If you have a good Credit Information Bureau (India) Limited (CIBIL) score, you come across as a trustworthy and responsible individual. Therefore, update your credit history and rectify any errors. Also, if you have a lower score, work towards fixing it before approaching a lender.
- External sources
There are various external factors that affect interest rates. The growth in the economy, inflation, and monetary policies are some of these factors. The future of economic growth also has an impact on the cost of the loan. If economic growth is unpredictable, lending institutions charge a higher interest rate. All these market factors are beyond the control of an individual.
By taking these aspects into consideration, you may land the best deal. Also, conduct a research on how to apply for a personal loan online for lower interest rates. The online platform reduces physical costs of the lender, therefore, the benefit is passed on to the customers in the form of lower interest rates. Personal loans are a great form of finance during times of financial crisis. Avail of a loan with attractive interest rates and pay considerably lower EMIs.