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Personal Loan Guide: 9 Lesser-Known Factors that Hurt Your Bank’s Interest Rate Offer

Updated on: 14 Dec 2021 // 25 min read // Personal Loans
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Life is full of uncertainties. We face good times as well as bad times in no predetermined order. No one can precisely predict what is waiting for them the next. Even the smartest of investors fail to time the looming market crash with foolproof accuracy. There always is a RISK element involved.

This is why: we all save a part of our monthly take-home income for tomorrow. Besides, parking in cash in your bank or mutual funds, one of the best investments you can do to safeguard your future is by adopting healthy financial habits & ever becoming creditworthy in life. That is, you must always st remain a risk-free and reliable customer in the eyes of a lender. With a good credit rating to back your profile, you can swiftly borrow a loan without any hassles, as and when required.

During an emergency, we seek instant access to cash and apart from Credit Card, it is only a bank that can help you get hold of the desired money the same day. Besides, you get the flexibility to repay in EMIs across the loan tenure. However, based on your credit profile, the bank’s Personal Loan Interest Rate offer would vary.

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How to ever remain eligible for Personal Loan?

The foremost factor that determines the suitability of a Personal Loan for you is the interest rate levied by the lender. As the Personal Loan is a financial commitment for a considerable duration, a slight shift in the interest rate can result in a significant impact on the interest cost over the repayment tenor.

As we all know, Personal Loan interest rates have become attractive these days, but at the same time, the effective rate quote that the lender will offer you depends on a number of factors. Here are some of the lesser-known factors that impact your Personal Loan Eligibility and the interest rate you will have to serve:

1. Poor credit score-

Your credit score is a very important factor affecting the interest rate offered by the lenders. As your credit score reflects your creditworthiness, lenders take it as a benchmark while determining your capacity to repay the principal amount. If you have a CIBIL score of 750+, you will get the lowest interest rates while if you have a CIBIL score of 650-700, your lender will charge a higher interest rate as the risk involved increases.

2. Inconsistent job history-

Your job history is also a factor that impacts your Personal Loan interest rate. Lenders want their customers to have a stable job history. Usually, the minimum experience requirement is 2 years out of which they expect you to be working in your current job for at least last one year. If you have been changing your jobs frequently or have been fired from any of your previous jobs, the lenders will levy a higher interest rate.

3. Unknown employer-

The reputation and credibility of your employer is also a deciding factor in determining the interest rate against your Personal Loan application. If your employer is a reputed organisation in the public or private sector, it is assumed that you will have a stable source of income and therefore are charged a lower interest rate. On the other hand, if you are working for a new company or a start-up, interest rate charged would be a little higher.

4. Lower annual income-

All lenders expect customers to have a certain income level to ascertain their repayment capacity. If your income is lower than the required threshold, the interest rate levied will increase. For instance, if you are living in a city and want to borrow at the best of HDFC Personal Loan Interest Rate, the bank requires you to have a minimum monthly income of Rs 20,000.

5. High credit utilisation ratio-

If you are using multiple Credit Cards and your credit utilisation ratio is higher than 40%, you are considered credit hungry individual. This is a red flag for the lenders, and they will charge a higher interest rate to cover the risk factors involved.

6. Poor repayment track-

Your loan repayment track is also a crucial factor that determines your interest rate for your Personal Loan. If you have defaulted on your EMIs in the past or have not been regular in paying out Credit Card dues, it casts doubts over your financial capacity. As a result, the lender will charge a higher interest rate due to the higher risk involved.

7. Type of lender-

The type of lender you apply with will also have an impact on your Personal Loan interest rates. While public sector banks and private sector banks will charge lower interest rates, NBFCs will charge a slightly higher interest rate. If you apply with online lending companies, the interest rate levied can be significantly higher. However, you can expect more flexibility & services with NBFCs and online lenders.

Subject to eligibility, SBI Personal Loan Interest Rate is more likely to be lower than other lenders in the market.

8. Lack of awareness-

There are various financial institutions offering Personal Loans, and it might confuse you regarding which one offers the best interest rates. While some lenders may offer lower EMI but higher APR (Annual Percentage Rate), others may provide you with higher EMI and lower APR. So, you must do your research beforehand and opt for the lender offering the lowest APR, as it will reduce the overall cost of the Personal Loan for you significantly.

9. Poor debt-to-income ratio-

Lenders usually require you to have a good debt-to-income ratio as it determines your Personal Loan eligibility. If you are using more than 60% of your monthly income towards EMI payments, then the risk factor increases for the lender. As a result, they will charge a higher interest rate against the Personal Loan.

Now that you have this crucial information with you make sure that your credit profile always remains upbeat, worthy of the best offer available in the market.

Also Read: What are the Best Personal Loan Interest Rate Bank Offers in India?

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