Life is uncertain and one can never be sure of when they might face sudden expenses. They can have a good income and a corpus saved; however, some might not want to use a major part of their savings to cover the expenses at hand. In such situations, they can always apply for a personal loan. This loan is considered to be one of the most versatile financial solutions for those in need of financial assistance since it does not restrict the borrower when it comes to using the loan amount for multiple purposes. Personal loan borrowers could use the loan amount to cover the expenses for home renovations, medical expenses, academic fees, or even to fund a vacation!
Now, while a personal loan can be a great way of arranging for the required funds, it is also important to note that lenders charge a certain interest rate on loans. To repay the loan without any stress, borrowers need to make sure that they are offered affordable interest rates on their personal loans. For this, it is essential to be aware of the following factors that lenders take into consideration while setting personal loan interest rates:
- Credit score
No matter what type of loan a borrower is applying for, lenders will always evaluate their credit score. Ideally, any applicant should maintain a credit score of 750 or more in order to improve their personal loan eligibility. This can also improve the applicant’s chances of getting a lower interest rate on the loan.
- Monthly income
Every lender has a certain income criterion that applicants need to satisfy in order to qualify for a personal loan. An applicant earning a high monthly income becomes less of a risk for a lender, which is when the lender can agree to offer them better loan terms such as a lower personal loan interest rate.
- Previous repayment record
Financial experts always advise individuals to repay their dues on time without any delays. This is because lenders always check the previous repayment record of applicants. If this record includes loan defaults, the lender is most likely to reject the application or offer the loan at a high interest rate. An applicant with a clean repayment record is more likely to get offered a competitive interest rate.
- Existing debt
If an applicant is already repaying several loans, they might not have the financial capacity to take on another personal loan. This brings down their chances of getting a loan approval. Even if they do so, it is quite likely that they would be charged with a high personal loan rate. To get favourable loan terms, it is always considered best to clear any existing debt.
Financial institutions can offer varying personal loan interest rates based on their individual terms and conditions. So, make sure to consider various plans to understand which lender is offering a competitive interest rate. It is also advisable to use a personal loan EMI calculator to find out the Equated Monthly Instalment (EMI) payments of a personal loan. Using this tool will help in understanding whether the interest rate offered by the lender is an affordable option.