How are the interest rates determined for unsecured car loans?

Several factors determine interest rates for unsecured car loans, helping lending institutions assess the level of risk involved in lending money without requiring collateral.

• The primary factor is your credit score. A higher score indicates a lower risk for the lender, often leading to a lower interest rate. On the other hand, if your credit score is lower, the bank or Non-banking Financial Company (NBFC) might charge a higher rate to offset the risk.
• Your income and employment stability are essential. Loan providers want to ensure you have a steady income to repay the loan. A stable job and a higher income can make you a more trustworthy applicant and potentially lower your rate.
• The loan amount and term also play a role. Shorter loan terms often come with lower interest rates because the financial institution's money is tied up for a shorter period. Similarly, the loan size can affect the rate, with larger loans sometimes having a slightly lower rate due to reduced risk for the financial institution.
• Lastly, the bank or NBFC policies and market conditions can influence the rate, as different loan providers may offer different terms based on their internal guidelines or economic factors.