A personal loan is an unsecured loan which helps a borrower to meet his immediate financial needs such as holiday trips or medical emergencies. If you are also planning to apply for a personal loan, there are certain things that would require your attention to make the most of your loan. The most important thing that you should keep in mind is the rate of interest being offered on your loan. A higher interest rate indicates a higher EMI and vice versa. Individual lenders and banks do not offer the same interest rates to every individual. There are multiple factors that affect this decision. The following aspects are bound to affect your interest rates:
- Your credit score: Your credit score is the most important factor taken into account while processing your loan application. To apply for a personal loan, you need to have a solid credit history because it’s a reflection of your past repayment behavior. To calculate your credit score, banks and financial institutions take two important things into account: (a) repayment of past or current loans and (b) repayment of your credit card bills. If you have a good credit score, you may get a lower rate of interest on personal loans.
- Your income: Your eligibility for a personal loan is directly dependent on your annual income. Since personal loans are unsecured loans, there is no involvement of collaterals for the same. Hence, a high and stable income is an assurance to the lender that the debts will be paid on time without any hassle. You are also required to submit proofs of a steady flow of remuneration. Otherwise, the lender may reject your loan application.
- Your organization’s reputation: The reputation of the organization you work with also plays an important role in determining your personal loan interest rate. If you work for a company that is not well-established and stable, the interest rate will be higher. Similarly, if you work for a stable and renowned organization, you are more likely to get a lower personal loan interest rate. This often happens because banks consider employees working in renowned companies to have a fairly stable career. Hence, these individuals automatically become more susceptible to making regular repayments.
- Your reputation with the bank: Banks prefer to give loans to individuals who share a cordial relation with them. If you have been a loyal customer of a certain bank, then the bank is likely to give you a personal loan at lower interest rates. Banks generally prefer maintaining relationships with their regular customers rather than losing them to a competitor bank.
Conclusion: So, if you are planning to take a personal loan at a lower interest, you need to have a good credit score along with a stable income and job profile. In addition, if you have been a loyal customer of a certain bank, then the bank is likely to give you a personal loan at lower interest rates.