A personal loan can be very helpful in dealing with an emergency where an individual might be in need of funds immediately. This could be anything from needing funds to pay off academic fees, covering debt, or even taking care of a medical emergency. Today, lenders offer personal loans with minimal documentation requirements, which helps borrowers get loan approvals in no time.
However, before applying for a personal loan, it is essential for any borrower to make sure that the loan plan is affordable. Focusing on the interest rate of a personal loan is essential to understanding the Equated Monthly Instalment (EMI) payments of the loan. Based on the results, an applicant can decide whether to go for the loan or look for a better option. So, read on to learn more about personal loan interest rates.
What is a good interest rate for a personal loan?
Borrowers who currently apply for personal loan plans are most likely to get offered interest rates in the range of 10.99% to 24%. The interest rates that borrowers are offered also depend on their profiles. There are various factors that financial institutions consider while setting interest rates, which is why different lenders can charge varying interest rates depending on their terms and conditions.
What are the factors that influence a personal loan interest rate?
- Credit score
Financial institutions always check an applicant’s credit score before offering them any type of loan. Since a personal loan is an unsecured loan, lenders face a higher risk if borrowers are not able to pay back the loan amount. This is why lenders prefer borrowers with good credit scores since this is an indication of a clear repayment record. Ideally, it is considered best to maintain a credit score of above 750, as this can help improve the chances of lenders offering lower interest rates too!
- Monthly income
An applicant’s monthly income is an important factor in the loan approval process. Only when an individual is earning a decent salary in which they are managing their expenses will they be able to take on a personal loan. This is exactly what banks are looking to determine during the verification process. If an applicant is earning a good and stable monthly income, lenders are more likely to offer a lower personal loan interest rate.
- Employer’s reputation
A lot of people do not know this, but lenders even evaluate their applicants’ employers. If the employer is a reputed organisation which the applicant has been getting a regular income from, this improves the applicant’s chances of lenders offering lower personal loan interest rates.
Keep the above-mentioned factors in mind while looking for a competitive personal loan interest rate. Lastly, do note that it is best to make use of a personal loan EMI calculator as this calculator displays the EMI payments of a loan based on the loan amount, interest rate, and repayment tenure. This way, a borrower can find out whether the interest rate of the loan is affordable or not.