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What factors are loan interest rates based on?

By Finserv MARKETS - Aug 28,2019
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Factors affecting interest rates

Personal loans have become a customer favorite due to their no-strings-attached disbursal process, hassle-free documentation process and speedy approval rates. While other loans such as education loans and home loans have fixed rates of interest attached to them for all customers, the rate of interest charged on personal loans varies from person to person.

In fact, the rate of interest on personal loans can vary from 11% to 24%. Banking and lending institutions consider a range of factors to decide what interest rate you will be charged. Here are some of the factors that influence their decision:

1. Income

Obviously enough, your income is one of the key factors your bank or lending institution will take into account to decide how much interest rate you will be charged. Most personal loans have a minimum income as an eligibility criterion. Usually, the higher your income is, the more likely you are to pay it back and hence, you will most likely be charged a lower interest. However, the rate you are offered may differ from bank to bank.

2. Credit Score

Your credit score is one of the most important factors that affect the interest rate you will be charged on your loan. Banks and lending institutions obtain your credit score from any of the four Reserve Bank of India (RBI) licensed bureaus, namely, the TransUnion CIBIL, Equifax, Experian and CRIF Highmark. Your credit score informs lenders and banks about your creditworthiness. This is measured by collecting data from members, including individual customers. Usually, a credit score between 750 and 900 is considered as great. The closer your score is to 900, the more likely you are to get a lower rate of interest. If your score is below 675, you may need to improve the credit score before applying for a personal loan. In order to calculate your credit history, most credit accounting agencies take into account your repayment of past or current loans as well as your repayment of credit card bills. Having a strong credit score is critical to getting a favourable rate of interest on your loan.

3. The reputation of your employer

Another factor that can help your bag a favourable rate of interest is the reputation of your employer or organization. If you work for a renowned and stable organization, you are likely to get a stable rate of interest. This is because banks associate employees of stable/big organizations as more likely to pay back their loans as they have stable jobs and incomes.

4. Your relationship with the bank

Yes, you read that right! The rate of interest you are being charged for your personal loan will be affected by your relationship with the bank. If you are a loyal customer of a bank and have a personal relationship with the bank, you are likely to be able to get a more attractive rate of interest than a new customer. This is because banks like to preserve their customers and do not want to lose you to another bank when you are in need of a personal loan. If you opt to get a Bajaj Finserv personal loans available on Finserv MARKETS you can enjoy flexible repayment options and tenure payment period as convenient to you.

5. Defaults in payments

If a lender finds out that there are defaulting payments in your credit profile, they will charge you a very steep rate of interest or can even reject your application. Defaulting payments do not bode well with banks and financial institutions and they prefer to go for borrowers who have no defaults over the last 12 months. Get to know all Bajaj Finance Personal Loan Interest Rate and charges on Finserv MARKETS.

6. Repayment history

Another critical factor that influences the rate of interest you will be charged is your repayment history. Usually, if you have a good repayment history, you are more likely to get better rates of interest and quick loan approval. However, if your credit score is high but your repayment history is not good, the interest rate you will be charged could be very low or high, depending on your bank or lending institution.

Finserv MARKETS offers Bajaj Finserv personal loans for up to Rs. 25 lakh with flexible repayment options and tenures ranging from 1 year to 5 years (with an annual renewal option for interest servicing loan). In fact, you do not even have to provide any kind of security or guarantee and the loan will be approved in less than 24 hours.

Download Bajaj Finserv App to get personalized choices for Bajaj Finserv Loans.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522