A personal loan is perhaps one of the simplest, most useful financial tools available in the market today. It requires no collateral and allows you to use the money for any personal reason. However, the lack of security on the part of the lender it’s a huge financial risk. That is why in most cases, lenders of Personal loans demand a higher rate of interest as compared to other forms of loans.
There are certain factors that affect the rate of interest that a lender may apply to your loan application. By keeping a close eye on the following factors, you can ensure that the rates of interest offered to you on a personal loan starts on the lower side.
- Your credit scores:Your credit scores are the first and foremost factor that any lender will verify before even considering your candidacy. Credit scores show a direct correlation between a borrower’s frequency of acquiring loans and their ability to repay them hassle-free.
Practice healthy financial habits of paying your bills and debts on time in order to prevent any negative intonations to your credit score.
- Your income:Your income is the second piece of evidence that indicates your financial responsibilities. Your income statements are proof of whether or not you can repay the loan on time.
Lenders can make estimates of your financial behaviour and how assuredly you will pay back the money you owe without hindering your personal finances.
- The stability and reputation of your organization:Another important factor is the source of your income. While you may be earning a huge sum of money I think small business venture, the lender does not have any absolute proof that you will be able to repay the loan if the company was to go under or you were fired.
Based on the stability and reputation of your organization, Lenders determine How likely you are to maintain your source of income and thereby be capable of repaying the loan.
- History of loan acquisition and repayment:Your history of financial behaviour also plays an important role when determining the rates of interest on your personal loan. Some off-the-book lenders may even want to verify with other lenders in your past about your frequency of loan acquisition and how comfortably you could repay them. For the most part, lenders rely on your proof of credit history to determine your ability to repay the personal loan that you acquire from them.
- Relationship with the lender:In most cases, lenders tend to offer biased rates of interest for certain customers due to their healthy, professional relationships. Be it a bank or a personal lender, or even a financial institution, lenders always prefer borrowers who have maintained a cordial as well as a financially healthy relationship with them.
Ideally, a direct relationship with the lender in terms of past financial transactions or recommendation from a credible co-signer would go a long way to reduce the roots of interest levied on your personal loan.
