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What Are The Factors That Affect Personal Loan Interest Rates?

When there is inflation, lenders offer higher personal loan interest rates as opposed to lower rates during a recession.

Different lenders offer different personal loan interest rates based on your creditworthiness.
Different lenders offer different personal loan interest rates based on your creditworthiness.

Here are 5 crucial factors that affect your Personal Loan interest rates

Personal loans are one of the most versatile financing solutions as there are no restrictions on usage of the sanction. From your vacation expenses to down payment on your house, you can avail a personal loan for almost any need. But before you set out to take a personal loan, you must ensure that the cost is within your budget. This is where you assess your overall interest payout, which is determined by personal loan interest rates.

Personal loan interest rates are different across lenders and borrowers. Different lenders offer different personal loan interest rates based on your creditworthiness. Generally, with a good CIBIL score, you get nominal interest rates, making your personal loan more affordable. While deciding on personal loan interest rates, lenders consider several factors. And the good news is that you can boost your credibility by improving some factors that affect the interest rates. Read on to know what they are.

Monthly salary
Your income helps the lender determine whether you are a risky borrower or not. A high-risk borrower has a high probability of defaulting on personal loan repayment.

A high monthly income assures the lender of your ability to repay the loan on time. As a result, they may be more likely to offer you lower personal loan interest rates.

This is also one of the reasons why lenders have a minimum income eligibility criterion for a personal loan. You can apply for a personal loan only if you meet this parameter. Apart from your income, your employer also plays a role in the interest rates offered to you. If you work with a reputed employer, it points towards income stability, assuring the lender about your potential for timely repayment.

Repayment discipline
Your history of repayment is one of the most crucial factors that lenders consider while offering personal loan interest rates. A good repayment record ensures that lenders consider your credit profile low-risk for any new loan, including a personal loan. This also shows financial discipline, which increases your credibility. To plan repayment better, use a personal loan calculator to determine whether the loan fits your budget by computing various EMIs for different loan amounts and tenors. You can also try autopay and reminders to ensure timely payments.

Association with the lender
If you have had a previous transaction with a lender, they may offer you attractive personal loan interest rates. This is because lenders are likely to trust borrowers whose financial records they have on file and usually seek to retain customers in this way.

Your relationship with the lender can also speed up the approval process. If you have multiple offers from the various lenders you have transacted with, you can use an EMI calculator to know which offer is the best.

Credit or CIBIL score
Your CIBIL score is one of the most vital factors that help determine your creditworthiness. Lenders enquire about your CIBIL score before deciding the terms of your loan. Your CIBIL score and credit report contain all the information about your previous credit behaviour. A high credit score shows that you are a credible borrower, and lenders may offer you lower personal loan interest rates. This is why it becomes essential for you to boost and maintain your CIBIL score.

Economic climate and other market factors
Inflation, recession, repo rates, and more affect the cost of your loan. When there is inflation, lenders offer higher personal loan interest rates as opposed to lower rates during a recession. Low repo rates also translate to lower interest rates. This is the rate at which lenders borrow from the RBI; therefore, it directly impacts the personal loan interest rates offered to you. Although these factors are beyond your control, if possible, you can make the most of them by borrowing during a low-interest rate period.

You can make personal loan repayment pocket-friendly by keeping these factors in mind. You can also use an EMI calculator, also known as an interest rate calculator, as this tool gives you an estimate of your EMIs and repayment schedule. Based on this information, you can borrow smartly and carefully.

To enjoy affordability and convenience, consider the Bajaj Finserv Personal Loan, which offers a high loan amount of up to Rs. 25 lakh. You can also get repayment flexibility with a tenor ranging from 12 to 60 months. Check your pre-approved offer today.

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