Here are the key factors that may affect the personal loan interest rate:

  1. 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.
  2. 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.
  3. 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. 
  4. 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