You can avail a personal loan whenever you are in financial distress. Best personal loans have no restrictions on the usage of sanctions. They are thus considered to be a highly versatile financing solution. However, before availing of the best loan, it is good to consider the overall interest payout of the loan, determined by the personal loan interest rate.
What Are Personal Loan Interest Rates?
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What Are the Factors that Affect Personal Loan Interest Rates?
Your creditworthiness determines what loan interest rate your lender offers you. Your personal loan becomes more affordable if you have a good credit score. Apart from these, lenders assess other factors while deciding on personal loan interest rates.
Your Monthly Income
Your monthly income is a significant factor affecting loan interest rates. Through your salary, the lender determines whether you come under the category of a risky borrower or not. If you have a higher income, your lender will lend a favourable rate on your loan. With a higher income, it becomes easy to pay the EMIs promptly. Due to this reason, lenders often tend to have minimum income eligibility criteria to avail of a personal loan. This is also done to prevent risky borrowers from availing of loans.
Your Relationship With Your Lender
You’ll get a favourable personal loan interest rate if you have a good relationship with your lender. You might also get attractive interest rates on your loan if you have been associated with the lender for a long time and have conducted transactions previously with them. Generally, lenders can trust people with whom they’ve been associated for a long time and whose financial records they have documented. Hence, you can negotiate the best personal loan interest rates on your loan if you have a reliable and well-established relationship with your lender.
Your creditworthiness determines what loan interest rate your lender offers you. Lenders can assess creditworthiness depending on the credit score. Availing of a loan becomes more affordable if you have a good credit score. A good credit score also makes your loan approval process easier. A low credit score might lead to the rejection of your loan application. Thus, you must maintain good credit or CIBIL scores to boost your creditworthiness.
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Repo Rate and Other Economic Factors
The repo rate during the time you avail of a personal loan also determines the interest rates on your loan. If the repo rate is lowered, you can afford the loan at a lower rate. The economic climate and the market movement during the time tend to affect the personal loan interest rates. Inflation and recession can cause the loan interest rates to be higher and lower, respectively.
History of Repayment
Lenders assess your history of repayment to determine whether you are a risky borrower or not. If you have a history of defaulting (not repaying the loan on time), there are more chances of your loan application getting rejected. Lenders determine the loan interest rates based on your track record. You’ll get the best loan at a favourable rate if you have a good repayment history. This also portrays financial discipline, which makes lenders give you attractive interest rates.
If you want a loan at an affordable rate, it would be best to keep the above factors in mind. Knowing them will allow you to get the best personal loan at a remarkably favourable rate.