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Personal Loan
5 factors affecting personal loan interest rates
Key Takeaways
Your income level plays a major role in determining interest rates for a personal loan as higher income implies better repayment capacity
- A strong credit history and good CIBIL score help you secure personal loan at lower interest rates from IDFC FIRST Bank
- Employment in a reputed organisation gives you an advantage when the Bank assesses your application
- Your past loan repayment behaviour and existing relationship with IDFC FIRST Bank can lead to smoother application
The affordability of a personal loan depends greatly on its interest rate. A higher interest rate can lead to higher EMIs. Individual banks and lenders do not levy the same interest rates to every individual. Multiple factors affect this decision.
Personal Loan interest rates are decided, taking into consideration the following factors:
Income
Your income is the foremost deciding factor for your personal loan application. The greater your income, the higher your chances of being assigned lower personal loan interest rates. The bank needs to determine how easily you can repay the loan amount. To provide customers with a personal loan, the bank needs to trust them. This can only be possible when their income is above a certain minimum value.
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Credit history
Before the loan is approved, a lender will usually evaluate your CIBIL score to understand your credit history. The credit score is a 3-digit numeric rank provided by the Credit Rating Agency to individuals based on their credit repayment history. A good credit score is an indication that you can manage the loan well and repay in time.
Organisation’s reputation
Individuals working for a renowned organisation are more likely to receive a low interest on personal loans. Banks view employees working in renowned companies to have a fairly stable career and hence believe that they would make regular payments.
Loan payment history
Along with your overall credit score, previous repayment records will also be checked before your personal loan interest rate is decided. If the bank or lending company sees that you have been disciplined with your repayments, you will probably be charged a low-interest rate on the loan. Most banks will prefer lending to customers who haven’t defaulted in the previous 12 months. For most loan defaulters, the loan application is rejected, or a hefty interest rate is charged.
Banking relationship
Your history of opening savings accounts and fixed deposits with your bank would have made you a loyal customer. Your loyalty can establish an interpersonal relationship with the bank which could fetch attractive personal loan interest rates. An existing relationship will come with a certain sense of leverage, as the bank wouldn’t want to lose you to a competitor.
The five factors discussed above influence the interest rate on your personal loan. Ensure that these factors work in your favour before you apply for one.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.
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