How does credit score impact my personal loan interest rate?

Your credit score plays a crucial role in determining the interest rate you will receive on a personal loan. A credit score is a numerical representation of your creditworthiness, and the financial institution uses it to assess the risk of lending money to you. Here is how your credit score can impact your personal loan interest rate:

• High credit score: A high credit score indicates that you have a good credit history and are more likely to repay your loan on time. Financial institutions view borrowers with high credit scores as low-risk, and as a result, they are more willing to offer lower interest rates.
• Average credit score: An average credit score suggests a moderate risk profile. Financial institutions may offer slightly higher interest rates to compensate for the perceived risk associated with these borrowers.
• Low credit score: A low credit score signals a high-risk borrower with a higher likelihood of defaulting on the loan. In such cases, financial institutions may either charge a significantly higher interest rate or decline the loan application altogether.

To secure a personal loan with a favourable interest rate, it is important to maintain a good credit score by making timely payments, keeping your credit utilisation low, and avoiding multiple loan applications within a short period.

Regularly monitoring your credit report and taking steps to improve your credit score can help increase your chances of obtaining a personal loan at a competitive interest rate.