actors affecting interest rate

Factors that Affect your personal Loan Interest Rate

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If you have applied for a personal loan or are shopping around for one, you will agree with me that the interest rate charged is one of the first criteria that you consider. It is the single most crucial factor and determines the amount that will be finally paid out at the end of the loan period. In the ever-competitive financial sector- banks, NBFCs and Fintechs are offering competitive personal loan interest rates and tenure to lure customers. The eligibility, terms and conditions all differ from institution to institution.

What are personal loans?

The unsecured loans extended by banks and NBFCs to its customers when dealing with financial shortfalls is called personal loans. Such loans do not require any collateral to be pledged thus making it an ideal solution for young households that do not have any assets. Any emergencies like hospitalization or renovation/emergency repairs to your house can be easily handled. But its scope is not restricted to emergency situations, you can choose a personal loan to plan and execute an exotic vacation, your dream marriage or even to consolidate your debts.

Most Banks and NBFCs take up to a week or more to assess your application and give you an update. Fintechs, in contrast, are very quick and Qbera assess your online loan application within minutes and gives an update in as less as 10 mins. So, yes, it is an ideal choice to make when facing financial difficulties but be aware of the interest rate and the factors that affect it.

Factors affecting the interest rate:

  1. Credit history– being unsecured, the borrower’s credibility is extremely important and so there is a heavy reliance on CIBIL score to determine the creditworthiness. Higher the credit score you possess, more the negotiation power in your hand. The institutions will anyways offer you the best possible interest rate.
  2. Income– higher the salary and job stability, more the chances of getting your personal loan application approved with a low-interest rate. This further strengthens the institution’s trust that you will be able to repay the amount. This, however, leaves the low-income groups without any source to get a personal loan. Qbera does consider individuals with a net take-home salary of Rs 18,000/-per month.
  3. Company status– The company that you work for also gets due consideration. Big companies with a reputation or the presence of the company in the institutions’ database are beneficial in landing a personal loan at a lesser interest rate.
  4. Relationship with the bank and your negotiation skills– If you have an existing account with the bank or have taken a loan from the institution and diligently repaid it, you can negotiate the terms of interest applied. Most institutions prefer retaining their loyal customers and may consider your application with the lesser interest rate.

Other than these, monetary policies in place set by the reserve bank of India has an impact on the loan interest rates and may cause the rate to go up or down based on their policies. Personal loans are an excellent way to manage monetary deficits without relying extensively on family or friends and also eliminates to need to pledge assets. Shop around for the best offers and avail one that is ideally suited to your requirement.

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