What factors determine my personal loan interest rate?

Several key factors determine the interest rate you are offered on a personal loan in India. Lenders use these criteria to assess your creditworthiness as well as the risk involved in lending to you. Understanding the factors below can help you prepare and potentially secure a more favourable rate.

1. Credit Score:

   A higher score usually above 750 shows responsible credit behaviour while lowering the perceived risk for the lender.

2. Income Level & Stability:

   Lenders evaluate your monthly or annual income to make sure if you have the capacity to repay the loan. Higher and stable income levels generally lead to better rates as they indicate lower risk of default.

3. Employment Status:

   Salaried people frequently receive more alluring rates than self-employed applicants particularly those who work for reputable companies or government agencies.

4. Debt-to-Income Ratio:

   This ratio measures your existing debt obligations relative to your income. A lower debt-to-income ratio implies that you are not over leveraged which makes you a safer bet for lenders as well as qualifying you for lower rates.

5. Loan Amount and Tenure:

   The amount you wish to borrow along with the repayment period can influence the interest rate. Larger loan amounts or longer tenures may attract higher rates due to increased risk.

6. Relationship with the Lender:

   Present clients could be eligible for better interest rates from their lender if they have strong repayment history.

7. Economic & Market Conditions:

   Prevailing economic trends, inflation and policy rates set by the RBI can also impact personal loan interest rates.