Key Factors That Affect Your Personal Loan Interest Rates

A personal loan is given to people who need the amount to meet any of their personal needs such as medical emergencies, home renovations, vacations, wedding expenses, etc. It is also a kind of unsecured loan in which the borrower does not have to pledge any property in order to secure the loan.

Aspects such as credit rating and repayment history are assessed before loan approval. Although personal loans may seem attractive, there are nevertheless many things that should be considered before applying for a personal loan. Indeed, the interest to be paid on a personal loan is likely to vary and depends on several factors such as the category of the borrower and the eligibility criteria set by the lender.

Below are some factors that should be considered when applying for a personal loan:

Credit score

Obtaining a personal loan is highly dependent on having a good credit rating. Credit score basically means how likely you are to honor the loan repayment based on your financial situation. This basically means that lenders would benefit from having a lucid idea of ​​the borrower’s income, existing debt, repayment history, and borrowing behavior. Having a good credit score, that is to say above 750, will indeed help to develop trust between the borrower and the lender. Generally, a lower CIBIL score can also lead to a cumbersome loan securing process situation. Also, lenders usually lower their interest rates for borrowers with good credit.


This element is inevitably the most important because it alone can determine whether the interest rate of the personal loan should be lower or higher. Basically, income is directly proportional to a borrower’s chance of earning a favorable interest rate.

Working people with a higher income and stable, gainful employment are more likely to get a lower interest rate, as this gives lenders confidence that they will not default on the loan repayment. A higher interest rate is usually charged on low-income people, as the lender wants to mitigate the risk of non-repayment.

Debt to income ratio

Being an employee of a stable and healthy income-generating company, and having a good salary, demonstrates the possibility of non-failure in the repayment of the loan on time. The debt-to-income ratio is basically the ratio of all debt payments divided by total income. Therefore, the debt to income ratio plays an important role in obtaining a personal loan as it is directly proportional to the borrower’s debt burden when repaying.


The age of the borrower may not seem very important, but it has an important role because it conveys to the lender the number of years left to the borrower in terms of years of work. The most preferred age range for granting personal loans from a lender’s perspective is 23 years old to 58 years old.

Current liabilities

The lender would certainly be very interested in knowing the current liabilities, if any, that you are carrying. This would give them a clear idea of ​​your repayment capacity considering your income.

Banking relationship

Being a loyal customer and having different types of accounts such as a savings account or a fixed account will also be a favorable factor in making you a trusted customer. This loyal banking relationship can also earn you an attractive interest rate for your personal loan. Most banks would never want to lose their loyal customer base and would therefore want to retain and offer all of their products to these customers in conjunction with more favorable items.

Default values

Any failure to repay your past commitments can make it difficult for you to get a lower interest rate or even a personal loan. So beware of any failure to repay your current or past debts. The CIBIL score reflects poorly on default, which impacts the chances of getting a personal loan or a good personal loan interest rate.

Employment status

Job stability also plays a huge role in getting a lower interest rate for a personal loan. In fact, most banks have a much smoother lending process when it comes to people placed with reputable companies and businesses. It all boils down to lenders’ confidence in the borrower’s ability to repay. The nature of the job can also have an impact on interest rates. For example, a salaried professional may be treated a bit more favorably as opposed to a self-employed professional or a professional approaching retirement age may be able to obtain the personal loan at higher interest rates.

Except the factors mentioned above, other factors such as loan tenure can also come into play when determining the personal loan interest rate. A short-term loan. Moreover, all the factors suggest only one thing that the reliability and trust of the lender are imperative to guarantee a reasonable rate of interest.

The author, Mahesh Shukla, is founder and CEO of PayMe India. Opinions expressed are personal

First post: STI

Bernadine J. Perkins