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What Are The Factors That Affect Personal Loan Interest Rate?

The demand for personal loans has been on the rise lately. In this fast-moving world, a financial crunch can come to haunt anybody at any point in time. The demand for capital can be substantial sometimes. However, borrowing money from a friend or credit cards as a means to tackle these situations can prove to be a double-edged sword. Taking a personal loan from a good financial institution is one of the best ways to sort out your financial situation in the long run.

Financial institutions like Fullerton India provide great schemes for a personal loan at an attractive rate of personal loan interest. However, before you apply for a personal loan, you should be aware of the factors that can affect your personal loan interest rate. In this article, we will discuss these factors in detail.

Following are some of the major factors that can affect the interest rate on your next personal loan.

Factors That Affect Personal Loan Interest Rate:

Income

Income is one of the most detrimental factors while taking a personal loan. A higher monthly income instills more trust in your lender and hence, it will be ready to offer you a loan at a reduced rate of interest.

Along with the amount of your monthly income, the stability of it also matters. Hence, the lenders will also look into the fact that for how long have you been getting the salary and how consistently has it been deposited in your account.

Employer’s Credibility

Since your salary statement is the only proof of your income, the viability of your employer to keep providing you with the salary, in the long run, is something that the lenders want to make sure of. A stable and renowned organization is ideally more capable of giving the salary consistently for a long period of time as compared to a small and new organization keeping everything else constant.

Credibility

The financial credibility of the borrower is also an important factor. This is judged through a metric known as a credit score. Your credit score is a reflection of your past financial transactions and your overall financial viability.

In the case of personal loans, where no collateral is generally required, a credit score is the only proof of your viability to return the loan on time. Hence, having a great credit score will give you an upper hand while negotiating for a better interest rate on your personal loan.

Employer’s Credibility

Since your salary statement is the only proof of your income, the viability of your employer to keep providing you with the salary, in the long run, is something that the lenders want to make sure of. A stable and renowned organization is ideally more capable of giving the salary consistently for a long period of time as compared to a small and new organization keeping everything else constant.

Hence, the stability and credibility of your employer is also a factor in the final negotiation and will definitely affect the rate of interest charged on your personal loan.

Debt-to-income Ratio

This is a financial terminology used to measure the liquidity at the end of the borrower. Financial institutions will like to make sure that you don’t have any major previous debts. Even if you have any debts already on your name, then their size as compared to the size of your income is also an important factor.

Simply put, a person with zero or a very small debt to his name will get a better rate of interest in his personal loan as compared to someone who already has a massive debt on his name.

These were some of the major factors that can affect your rate of personal loan interest. However, there are still some factors that might affect the rate of interest like the tenure of the loan. Getting a loan for a shorter period of time will incur a lower rate of interest. Keeping these points in mind while taking your next personal loan will help you in negotiating for a better rate of interest. It will also motivate you to keep certain things in check before applying for a personal loan.

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