Factors That Lead to Personal Loan Interest Variation

Factors That Lead to Personal Loan Interest Variation

March 13, 2024

Understanding all the factors beforehand helps a borrower in better planning for the loan. A Personal Loan has no end usage restrictions and can be used for various purposes such as weddings, higher education, travel, home renovation, etc. There are various lenders in the market offering Personal Loans at various interest rates. To avoid any confusion, you can visit the lender’s official website to check all the information regarding the Personal Loan. 

Before applying for Personal Loan, an individual needs to check for Personal Loan eligibility. Checking Personal Loan eligibility will help individuals to plan their Personal Loans better. Personal Loan interest is one of the major factors that influences your monthly EMIs. Below are factors that influence Personal Loan interest:

  • Credit Score

A credit score shows the creditability of the individual – whether he/she will be able to pay the loan amount on time. Various agencies such as CIBIL provide credit scores. The credit score ranges from 300-900 where a credit score of more than 750 is considered a good credit score and below 500 is considered poor. An individual with a credit score of more than 750 is likely to get the desired loan amount easily with a lower interest rate as compared to an individual with a poor credit score. 

  • Income 

Income is one of the major factors that influence your Personal Loan interest rate. Lenders prefer an individual with a higher income level as he/she is perceived to be more capable of repaying the loan. Also, he is more likely to get Personal Loan interest at a lower rate. On other hand, an individual with a lower income will find it difficult to get loan approval. 

  • Organisation reputation 

An individual working with a reputed organization generally indicates that he/she has a good stable job with a fixed monthly income. This helps in creating trust with the lender as he/she will be able to repay on time. Similarly, an individual working with an unrecognized organisation or with an organization that has poor financial standing is likely to get a loan with a higher rate of interest or might have to face rejection. 

  • Relationship with the lender

Building a good relationship with a lender is of utmost importance. It helps in various situations like when you are applying for a loan with the same bank. A good relationship with the lender can help you avail of a loan at a lower interest rate. The lender has all the required details of a borrower already existing in their records. There is an already established trust between the lender and the borrower owing to the ongoing/recent relationship. A new borrower may not have the same benefits as an existing borrower. There is a higher chance that a new borrower will be offered a higher rate of interest as compared to an existing borrower or customer. 

  • Credit history 

Credit history is part of the credit report. A credit history consists of the record of all your previous credit such as credit cards and loans. There is a high chance that a lender will charge a higher interest rate if there is any default in the last 12 months. 

  • Debt to income ratio 

The debt-to-income ratio helps in understanding the percentage of the income that is used for paying monthly debts. A higher debt-to-income ratio means the majority of an individual’s income is used for paying the debts and is likely to get a higher interest rate. On the other hand, an individual with a lower debt-to-income ratio is considered a lower-risk borrower. 

What consists of Personal Loan eligibility?

Below are the Personal Loan eligibility factors that must be fulfilled by the borrower before the loan is approved:

  • Age: the age requirement before applying for a Personal Loan is that the applicant should be between 24 and 58 years of age.
  • Income: A borrower must have a monthly income of at least ₹40,000 or more. 
  • Employment: He/she must be a full-time employee with more than 2 years of experience in the same organization. 
  • Credit Score: Ideally, a borrower must have a credit score of 750 or more. 

Please note that there can be variations in the above-mentioned eligibility as different lenders have different eligibility criteria. As a smart borrower, you must visit the lender’s official website.  

To Conclude

A borrower must act responsibly while applying for a Personal Loan. Understanding the factors influencing Personal Loan Eligibility and Personal Loan interest will help you plan your Personal Loan efficiently. 

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March 13, 2024

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