To fulfil the unforeseen financial needs, like in a medical emergency, and to meet all the other additional financial needs, personal loans are the best option. Even with a rally in personal loan interest rates, personal loans are consumed increasingly as they are easy to get and can be used for any purpose.
But, getting a personal loan at a lower interest rate is always preferred by all. For a car loan or a mortgage loan, the rates more or less remain fixed for all the consumers. But for personal loans, you can negotiate the interest rate based on your income, CIBIL score, and repayment capacity.
With these 5 factors that affect the interest rates, you can ensure a great deal on your loan.
- Credit score: Credit score plays a crucial role as a deciding factor for interest rates. The credit score indicates your income, existing debt, borrowing behaviour, and payback history of previous loans. The credit score limit varies between 300-900 points, and the higher the figure the better the rates you can have, but a score of 750 is considered decent. It tells the lender about your seriousness towards financial responsibility.
- Income: Your income is an equally important factor as credit score because it tells if you are eligible to borrow and also if you can easily repay your dues. It works inversely with the rate of interest, which means the higher the income, the lower the rate of interest on your loan. Your income also helps the lender to understand the amount you can easily pay back along with other expenses you have.
- Debt-to-Income ratio: After your income, it is equally important to see what are your liabilities and if you are financially able to pay back the loan easily or not. The debt-to-income ratio is a figure of your total liabilities over your total income. A higher DTI ratio tells that you are more in debt, and it will raise the rate of interest on your personal loan, and in some cases even reject your application for a loan.
- Loan repayment and credit history: The lenders check your credit history to see if you have done default-free repayments for all your previous loans. This helps to measure your goodwill towards the loans and make sure that in the future, you will timely pay off your loan without any delay. Clear credit history does you a favour, and a lower rate of interest is possible on your personal loan.
- Relationship with the lender: If you have been a good customer of the lender, in terms of repayment of your dues, you may get a loan at a lower interest rate. Sometimes, having regular income credited to your account can also help you with the rate of interest. As then, the lender will be knowing that you have a definite source of income, and you can repay the loan easily.
No doubt, your credit score, DTI ratio, and income, etc. affect the personal loan interest rates. At FlexSalary, you can even get a loan with a not so perfect credit score as well, because we take other factors into consideration. At FlexSalary, you can apply and get a loan even if your monthly salary is just Rs. 8,000. Also, as there is no fixed EMI, you can repay your dues in flexible payments at your convenience.