Whether you are looking to finance a home remodelling project, wedding, vehicle, or unexpected bills; a low-interest personal loan is the most convenient type of loan to improve your cash flow when you need it. The national average interest rate on a personal loan has been around 12%. Although personal loan interest rates are inching up, you can still snag a good deal depending on a few factors like your creditworthiness and the lender.
To keep costs low, you must always compare the personal loan interest rates given by various lenders and then make a well-informed decision of where to take the loan from, how much, and for what tenure.
Following are the 6 factors that influence personal loan interest rates:
- Monthly Income
To arrive at an appropriate interest rate, lenders evaluate the sufficiency of the borrower’s income. The minimum income required for salaried individuals is usually between Rs. 20,000 to Rs. 25,000 but the lowest interest rates are reserved for those with a higher, fixed, and guaranteed income as it signifies job security and a higher repayment capacity.
- Credit Score
Looking for a low-interest personal loan? Make sure that you have a good credit score. Defined by the history of all your borrowings, repayments, and debts; the credit score is one of the most critical factors impacting the interest rates. Borrowers with higher credit scores – 740 and above – are more likely to receive a lower interest rate on their personal loans.
- Repayment History
If you have repaid all your past loans without any default and delay, it means that you have good debt management skills and are a low-risk candidate for the lender. Hence, they might consider offering you a lower interest rate.
- Employer’s Reputation
The reputation of the organization that you work for also matters when calculating the interest rates. Borrowers belonging to a well-known company that offers a stable career, stand a chance to get a lower interest rate on personal loans.
- Debt-to-income Ratio
The debt-to-income ratio or DTI is the percentage of the income that goes into paying off debts each month. The lower your DTI, the safer your candidature is for obtaining a personal loan with a low-interest rate because your financial health is considered solid and your debt burden lower.
- Your Relationship with The Lender
If you decide to take a personal loan from the same bank where you have opened a savings account and fixed deposit account in the past, they are likely to offer you a competitive interest rate on your loan for the sake of retaining a loyal customer.
These days you can also opt for an instant online loan with a low-interest rate from trusted app-based credit lines like MoneyTap. It is an easy digital process with quick approvals requiring minimum documentation.
Now that you know the factors that influence personal loan interest rates, you can take advantage of the competitive interest rates and flexible repayment tenures available in the market, and negotiate the best deal for yourself.