Are you wondering if taking a personal loan would be an excellent choice to manage your immediate financial needs? Well, it sure is if you can quickly repay the loan amount within the given time frame. However, always be mindful of the personal loan interest rates to calculate the actual amount you will need to repay at the end of the tenure. You will only be able to manage your financial needs, but repayment in time will also help to boost your credit score. One can easily opt for a Fullerton India personal loan and get the required credit online seamlessly with minimal documentation. Let’s delve deeper to understand what a personal loan is.
Understanding Personal Loans
A personal loan can be easily explained as a credit amount that you can borrow from a lending party to meet a wide range of financial obligations. It is a type of unsecured loan usually available to meet current financial needs. The loan amount can be used to repay debt, pay for home renovation, wedding expenses, start a business, etc. The bottom line is no restrictions are placed on how you can use a personal loan amount. Unlike personal loans, there are restrictions on the use of funds borrowed in other cases, including home loans, car loans, business loans, etc.
Factors Determining Your Personal Loan Interest Rates
Personal loans are unsecured loans and usually carry a higher interest rate, as the risk is more significant in the absence of collateral. You should always check for the interest rate charged on your personal loan before opting for one. Some of the most crucial factors that can influence your interest rates on personal loans include the following.
Credit Score
The first in the list of factors influencing the interest rate on your loan is the credit score. So, what is a credit score, and how is it calculated? A credit score can be explained as a parameter to judge the creditworthiness of the borrower. It is a numerical expression based on the credit history of a borrower. The number can lie between 300 to 900, 300 being the lowest score and denotes poor creditworthiness. It is recommended to keep your credit score over 750 for enjoying lower interest rates and quick loan approvals. A credit score of 800 and above can help you get an average drop of around 0.25% in your loan interest rates.
Income Level
Your income level is an essential factor that can help to lower or increase the interest rates on personal loans. If your monthly income is on the higher end, your interest rates will be lower and vice versa. This disparity might seem unfair to the borrowers. However, from a lender’s perspective, someone who has a higher monthly income will repay the loan quickly and the interest amount compared to someone with a lower monthly income. Let’s take an example to understand better; a lending party might offer the same loan amount to person A (monthly income 80,000) at 12% and person B (monthly income 40,000) at 16%. The risk of default with B is higher, given the lower monthly income.
Repayment History
Your loan repayment history is among the most prominent factors influencing the interest rate on your loan amount. If you have a good repayment history, then lenders will trust you with their money and charge a lower interest rate on your loans. If your loan repayment history is insufficient, then irrespective of your good intentions, the lending institution won’t be able to give you a loan at a lucrative rate. Timely repayment of loans will help to build a strong repayment history.
Place of employment
Applicants who work in organisations which have a strong reputation, good profits and structured policies have a better chance of getting their loans approved, and receiving the best offers.
Relationship with the Lending Institution
Your relationship with the lending party also plays a crucial role in influencing the interest rates to be charged on your loan amount. If you have a long-term relationship with the lending institution, then they will undoubtedly provide you with a favourable interest rate on your loans.
In a Nutshell
These were some of the most critical factors that can influence the personal loan interest rates. It would help if you always tried to maintain a credit score over 750 because that is the first thing the lending parties usually assess. A good relationship with the lending party combined with a strong repayment history will surely provide you with a lucrative deal.
