Here are the key factors that may affect the personal loan interest rate:
- Credit history - Before a personal loan is approved, the bank or lender will evaluate your credit score to understand your creditworthiness. A credit score is a 3-digit number that showcases an individual’s credit history based on their repayment track record and other credit usage factors. The higher the credit score the better the chances of a lower interest rate on a personal loan.
- The reputation of employer- Individuals who work for reputed organisations are more likely to get a low-interest on personal loans. This is because renowned companies are considered to be fairly stable and hence lenders believe that can get regular payments from the borrower.
- Loan repayment history – Apart from your credit score, your previous repayment track record is also checked before the personal loan interest rate is decided. If a bank or lender notices that you have been disciplined on your loan repayments, you can get a low-interest rate on the personal loan. Most banks prefer lending to applicants who haven’t defaulted on loans or credit in the previous 12 months.
- Banking relationship - Your track record of opening savings accounts and other financial relationships with your bank can determine whether you have been a loyal customer of the bank. Your loyalty can help in establishing an interpersonal relationship with the bank and this can fetch attractive personal loan interest rates. A pre-existing relationship will offer a certain amount of leverage since the bank may not want to lose you to a competitor.
Additional read – Personal loan eligibility