One of the primary reasons people choose Personal Loans is their flexibility in terms of usage, collateral free nature, and low-interest rates compared to credit cards or other forms of credit. But before applying for Personal Loans, it is essential to check the Personal Loan Interest Rates you can get from different lenders as they differ based on various factors. Some positive factors can certainly help you get low interest for the Personal Loan you are looking at, and this post will explain them in detail.
Factors Affecting the Low Interest for a Personal Loan
Various factors may determine whether you get low-interest rates for a Personal Loan, and you must keep them in mind and try to improve them if needed, before applying for a Personal Loan. Here are some of them.
Lenders always check your credit score to ensure you are worthy of credit before approving your loan. A credit score speaks of your creditworthiness. If you have a high credit score, it shows that you are disciplined and likely to make timely repayments. A poor credit score will get you a high-interest rate or even see your application rejected. Hence, ensure you have a strong credit score to help you get lower interest rates. A credit score above 750 is considered good.
You can receive low-interest rates if you work for a high income and have been doing so for a minimum period of time. Since the banks will be aware of your income and employment stability, they will be much more confident in your ability to make your loan repayments on time. On the other hand, if your income is low, there is a possibility that you will not get great loan offers. The same applies to self-employed borrowers – their business must be of a certain vintage with a verifiable turnover.
Association with the bank
Your association with your bank plays an impactful role in interest rates for your loan. If you are an existing customer at a bank with savings accounts or fixed deposits at that bank, it makes it easier for the bank to trust you as a borrower. This can increase your chances of getting low-interest rates on Personal Loans. Some banks offer exclusive deals to pre-approved customers who are eligible for them.
Credit defaults might be a stumbling block for your Personal Loan application. Credit defaults mean when a former lender closed your account because of missed payments. Prospective lenders usually want to see your last 12 months’ history, so if you have not had any defaults in the past year, there is a chance that you might get a loan at a low-interest rate. If you defaulted on your credit in the previous year, the bank might increase the interest rate or reject your application for a Personal Loan.
You have a good chance of the bank lowering your interest rate if you have previously taken out a loan, repaid it on time, and have a good overall repayment history. Because your repayment history is trustworthy, lenders will be more inclined to offer low-interest rates for Personal Loans.
Current unpaid loans
A bank or another financial institution will give you a loan with a high-interest rate if you already have a loan or loans. that are past their due dates. This is because you will have to pay more EMIs, compromising your repayment capacity for the new loan. If it is not urgent, try to apply for a new loan when you have already repaid your previous ones or are about to do so.
The market cycles
Market health can also affect Personal Loan Rates. For instance, if it’s a slow or bust period, banks offer loans at low-interest rates to stimulate the demand for loans, making them cheaper. Similarly, if it’s boom time, interest rates become very high because people are spending more and borrowing more, thus creating more demand, and hence you get high-interest rates for the loans.
Economic factors also affect Personal Loan rates quite severely. Interest rates on Personal Loans can be significantly increased or decreased by economic factors like inflation, monetary policies, recession, government decisions on banks and other financial institutions, etc. For instance, interest rates rise along with inflation and vice versa.
Low-interest rates not only make the loan affordable by keeping EMIs less but be mindful they can increase the number of EMIs and overall interest you’ll pay. The lowest interest rates don’t mean the best deal. Nevertheless, you can make the most of the loan amount by considering these factors instead of losing hard-earned money to pay exorbitant interest. Try to maintain a good credit score and get a low interest for the Personal Loan amount you’e seeking.