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The interest rates to personal loans can vary widely depending on your credit score, income and the lender you choose.
The amount you borrow and the time you take to repay it also influence personal loan lender rates.
A personal loan can come in handy when you need quick cash – whether for a medical emergency, home renovation, or even a dream vacation. Unlike home or car loans, personal loans don’t require collateral, making them a go-to option for many. The interest rates to personal loans can vary widely depending on your credit score, income and the lender you choose. Some banks and NBFCs offer attractive rates, while others may charge a premium if your credit history isn’t great. Different lenders have different criteria, but some common factors influence the personal loan lender rates.
Let’s take a look at how lenders determine the personal loan interest rate you are offered.
How to get the best personal loan interest rate
• Maintain a high credit score (750+).
• Keep your loan-to-income ratio low by managing your existing debts.
• Choose a shorter loan tenure if possible.
• Compare multiple personal loan lenders before finalising.
• Apply during special offers or festive periods for better rates.
• Maintain a good relationship with your bank or lender for loyalty benefits.
Credit score and its impact on interest rates
Your credit score plays a significant role in the interest rate you receive. A high credit score indicates that you are a responsible borrower, which makes lenders more confident in offering you a lower personal loan interest rate. If you have a low credit score, lenders see you as a higher risk and may charge a higher interest rate to compensate.
• 750+: Low interest rates, as you are considered a reliable borrower.
• 650+: Moderate interest rates, as you may have some history of missed payments.
• Below 650: High interest rates, or even rejection, as you are seen as a high-risk borrower.
You can check your credit score for free on Moneycontrol app. Also, Moneycontrol offers access to personal loans up to Rs 50 lakhs in partnership with 8 lenders. The loans start at an interest rate as low as 10.5% per annum. The entirely digital process ensures quick approval and disbursement.
Impact of Loan amount and tenure
The amount you borrow and the time you take to repay it also influence personal loan lender rates.
• Smaller loan amounts generally come with higher interest rates because lenders make less profit on them.
• Larger loan amounts may get lower rates, but only if you have a good credit profile.
• Shorter loan tenure (like 1-2 years) often has lower rates, while longer tenure loans may have slightly higher rates because of the extended repayment period.
Impact of existing relationship with the lender
If you have an account with a bank or have taken loans from a lender before, you might get better interest rates.
• Banks and NBFCs prefer lending to existing customers with a good track record.
• If you’ve repaid loans on time before, your lender might offer a lower personal loan interest rate as a reward.
Some lenders even offer pre-approved personal loans with special interest rates to long-term customers.
Impact of Debt-to-income ratio
Lenders check how much of your monthly income is already going toward repaying other loans. This is called the Debt-to-Income Ratio (DTI).
• A low DTI (less than 30%) is ideal and can help you get a lower personal loan lender interest rate.
• A high DTI (above 50%) suggests you already have many financial commitments, so lenders might charge a higher rate.
Impact of Type of lender
Different types of lenders have different policies for setting personal loan lender rates.
• Banks usually have stricter requirements but offer competitive interest rates.
• NBFCs (Non-Banking Financial Companies) are more flexible but may charge slightly higher rates.
•Online lenders provide quick approvals but sometimes have higher interest rates depending on risk factors.
Impact of market and economic conditions
Lenders also consider external factors like the economy, inflation, and Reserve Bank of India (RBI) policies when deciding personal loan lender interest rates.
• When RBI increases interest rates, lenders increase their personal loan interest rates too.
• If inflation is high, borrowing costs may rise.
• During economic slowdowns, lenders might offer discounted interest rates to encourage borrowing.
Conclusion
Comparing personal loan lenders and maintaining good financial health can help you get the best deal. For a hassle-free loan experience, check out Moneycontrol’s online lending platform, where you can access loans up to Rs 50 lakhs from eight lenders, with interest rates starting at 10.5% per annum. The process is 100% digital, ensuring a quick disbursal.
