9 Factors That Affect Your Personal Loan Interest Rate

Since personal loans come under the category of ‘unsecured,’ the Interest rates on personal loans differ from one banking institution to another. To know more, given below are five major factors to determine the Interest rates on a personal loan.

Monthly Pay

Irrespective of whether you are a salaried/ self-employed individual, the monthly income is the deciding factor. The concept is simple. The higher the monthly income, there will also be a lowest personal loan interest rate thereby. It is due to applicants gaining a higher income, through which they will have a lesser chance of defaulting their repayments. 

For instance, a banking institution may offer Interest rates on personal loans at 14%. This will only apply if you are earning INR 50,000 or 12% if you are earning INR 1 Lakh. This applies on a monthly note.

Credit score

If your credit score ranges from 750 or above, it plays an important role in levied interest. A higher credit score is a ‘healthy sign’ to avail of interest rates on personal loans. Factors contributing to loan defaults can impact your credit score. If you have a poor credit score, your loan application will be rejected by the bank.

Note: Usually, a bank accepts a credit score of 750 and above, but if you have a score of 800, you can get an interest rate of 0.25%, which is a drop.

Reputation

If you are working with a reputed company, the reputation does make a difference. Why? Because banks perceive renowned companies’ employees to have a steady job and are less likely to default on their payments. Banking institutions use categories due to ‘Top 1000 companies’ or ‘Leading MNCs in India,’ among many more.

Note: If you work for a smaller company, with the employment rate being 100, banks will charge you a higher rate of interest.

 

Repayment history

Apart from going through your credit score, banking institutions also check your repayment slips. After which, they decide upon the Interest rates on a personal loan. Most of the banks lend to those customers who have not defaulted payments in the past 12 months. If you have defaulted on a loan, the bank will charge you with a heavy Rate of Interest on the loan or reject your application.

 

Relationship

The factor that matters is your relationship with the bank. If you have been a loyal and constant customer, you are good to go. This strategy applies to most of the banks. They will offer you discounts and special privileges to maintain a healthy relationship.

 

Tip: Keep a cordial relationship with your Bank Manager or Customer Care Executive. 

 

Considering these factors, you will be able to draw a comparison on the banks providing Personal Loans.

 

Banks Rate of Interest Amount
Allahabad Bank 9.05% onwards As per the profile
Axis Bank 10.49% onwards INR 50 ,000 – INR 15 Lakh
Bajaj Finserv 12.99% onwards Up to INR 25 Lakh
Bank of India 9.35% onwards Up to INR 10 Lakh
Citibank 9.99% onwards INR 10, 000 – INR 30 Lakh
HDFC Bank 10.75% onwards INR 50, 000 – INR 40 Lakh
HSBC Bank 10.50% onwards Up to INR 30 Lakh
ICICI Bank 11.25% onwards INR 50, 000 – INR 20 Lakh
State Bank of India 9.60% onwards Up to INR 20 Lakh
UCO Bank 8.45% onwards Up to INR 10 Lakh

 

Note: The rates of interest will change as per the bank/ NBFC policy.

 

In the case of personal loans, be it Banks or NBFCs, both provide business-related, personal, and retail loans. But in today’s day and age, NBFCs are becoming the go-to for Personal Loans. If you are looking out for hassle-free funds, opt for NBFCs.

 

NBFCs Rate of Interest Amount
Bajaj Finserv 12.99% onwards Up to INR 25 Lakh
Mahindra Finance As per the lender Up to INR 3 Lakh
IIFL Finance 13% onwards Up to INR 25 lakh
Tata Capital 11.25% onwards Up to INR 25 Lakh
Aditya Birla Capital 16.85% – 17.85% Up to INR 50 Lakh

 

Suppose you opt for Bajaj Finserv; the features provided are,

  1. Disbursal period within 24 hours
  2. No collateral needed
  3. No hidden charges
  4. Online loan account may help
  5. Flexible repayment tenure: 12-60 months
  6. Processing Fee – Up to 3.99%
  7. Foreclosure Charges – 4% + taxes

 

The Personal Loan Eligibility requirements are:

  • Minimum age: 23 years
  • Maximum age: 55 years
  • A salaried individual in an MNC, public/ private company
  • Indian resident
  • CIBIL Score>750

 

Documentation:

  • KYC documents
  • ID Card
  • Salary slips (past 2 months)
  • Bank account statement (past 3 months)

 

Note: Additional documents may be required during the loan procedure.

 

With the above information providing an overview of the factors influencing Interest rates on Personal Loan, the choice is yours.