Over a decade, the financial sector has seen an enormous rise in the demand for a personal loan as it is straightforward to apply for and is very helpful in settling people their financial needs such as weeding, buying any gadget or paying for the hospital bill, etc. both salaried self-employed person can apply for this loan. Both banks and NBFCnon banking financial companies(NBFC) provide these kinds of loans. The lender provides you with the loan based on your income, credit score, and your repayment capability. But the factor that plays a crucial part in your loan is the interest rate. It is the fees charged by the lender for providing you with the loan along with the other fees such as processing fees. The processing fee is a one-time payment but the interest rate is the amount that goes along with the life of the loan. The interest rate is different for every bank and NBFC. So one should check and compare the interest rate while applying for a personal loan.
The few factors which affect the interest rate are :
INCOME: Income is the first and the most important factor while applying for a loan. As if you have a higher income then you have greater chances to repay the loan so, the bank will charge you a lesser rate of interest. This is because it is an unsecured form of a loan. So, to cover the risk, the bank charges you more rate of interest if you have lesser income.
CREDIT SCORE & AND PAYMENT HISTORY: A credit score is inversely proportional to the personal loan interest rate. The more your credit score, the lesser is your interest rate. Credit score ranges between 0-900, and if your credit score is above 750, you can expect a lesser interest rate on your loan. While providing you with the loan, s also check your payment history. If your payment history is not up to the mark, the banks can decline your loan or can increase your interest rate.
RELATIONSHIP WITH YOUR LENDER: Banks or other lenders usually charge a lesser interest rate to their trusted customers. If you have a good payment history with your lender or bank, will be lenient in charging interest.
DOWN PAYMENT: The down payment is inversely proportional to the interest rate. The more the down payment, the lesser is the interest rate as it decreases the risk for the lenders, they will charge you the lesser interest rate.
LOAN TYPE: There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide the type of loan, they have to give, and the interest rates are different for each type of loan.
While applying for any loan, do compare the interest rate of different banks and NBFC. For example, Dena Bank personal loan has an interest rate ranging between 10.25% - 15.60%.
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