Ever wondered how your personal loan interest rate is determined? Well, there are numerous aspects that decide the rate you are provided. This article will highlight 7 of the more important factors, the knowledge of which could help you unlock slightly lower rates. Read on to find out more!
1. Your monthly salary.
Higher salaries mean a lower risk of defaulting this, in turn, results in lower rates. That’s why individuals with higher monthly salaries are always provided lower rates. So if you have a salary above Rs. 50,000 a month, you should try negotiating a lower rate on your personal loan.
2. Company repute.
Sometimes, it’s not just the salary but the name of your company that can influence your personal loan interest rate. Companies with good repute are considered good as they have more scope for growth and will pay more in the future. Even if you leave the company, having worked with reputed companies will help you better-paying jobs. Again, this reduces your risk to the lender and therefore helps you get a lower interest rate.
3. Previous repayment history.
If you’ve had previous loans, how you’ve handled them could affect the rate you a provided. A repayment history marked with late payments, cheque bounces & defaulting is definitely not going to get you a good rate as providing you a loan is a higher risk. On the other hand, on-time payments on all your loans will build confidence in the lender and they will provide lower rates.
4. Your credit score.
Oh, this is one of the biggest factors that influence the interest rate of your personal loan. In fact, forget poor rates, a bad credit rating could even result in much more disappointing outcomes such as a rejected application and a lost processing fee! This is why it is so, so important you check your rating before applying and look for errors or ways to improve it. Generally speaking, a credit score above 700 is good to go as far as personal loans are concerned. However, it doesn’t hurt to bring it closer to the maximum of 900, it will you immense power to negotiate lower rates.
5. Your history with the lender.
If you’ve borrowed from the same lender before, it should help you push for better rates. If it is a bank, having accounts with them in addition to a previous borrowing history is something you can always bank to pull down your personal loan interest rate. A repeat user is always more likely to get lower rates than a borrower who is a first time customer.
6. Type of loan.
Generally speaking, personal loans are a type of unsecured loan, meaning you are not required to provide collateral to secure the loan. However, some lenders offer you the option of providing collateral. This reduces the risk of loss to the lender who should, in turn, provide lowered personal loan interest rates.
Hope this has been helpful, good luck and happy borrowing!