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Tata Capital > Blog > 5 Factors That Affect the Interest Rate of Your Personal Loan

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5 Factors That Affect the Interest Rate of Your Personal Loan

5 Factors That Affect the Interest Rate of Your Personal Loan

Personal loans are ideal for meeting a host of financial needs. Moreover, there are no constraints on how you choose to spend the sanctioned sum.

Personal finance is collateral-free, and the interest rate charged by your lender depends on various criteria. Since a high rate means you pay a higher loan repayment amount, you must understand what impacts your loan rate before choosing a lender. 

Here are the 5 most crucial factors affecting personal loan interest rates.

Monthly income

Whether you are self-employed or salaried, your income is one of the most prominent factors in determining interest rates. The higher your income, the more likely you are to repay the loan amount on time. This means the higher your income, the lower your loan interest rate.

With Tata Capital, you can apply for personal finance with a minimum monthly income of Rs. 15,000.

Additional Read:  How much Personal Loan Can I Get on My Salary?

Credit score

Before your loan application is approved, a lender will meticulously check your CIBIL score. CIBIL score reflects your repayment capability. A healthy CIBIL score, ideally, more than 750, is considered excellent by lenders. And a good CIBIL score helps secure hassle-free approval and can fetch you relatively lower personal loan interest rates.

If you are consistent with your loan repayments, credit card bills, etc., it will positively reflect on your credit history. However, it is good practice to check your CIBIL score regularly to look for errors and discrepancies.   

Additional Read: How Opting for a Personal Loan Can Boost Your Credit Score in the Future

Repayment history

In addition to your CIBIL score, lenders also evaluate your past credit record while deciding your personal loan rates. A clean credit history, with disciplined payments on previous loans and no defaults, is favourable. This will also help you get faster approvals.

Lenders often prefer borrowers with no defaults in the past 12 months.

Employer’s reputation

Working with a reputed employer boosts your chances of getting attractive interest rates on your loan. This is because lenders perceive your job as secure, and you less likely to default on your EMIs.

Debt-to-income ratio

The debt-to-income or DTI ratio is a figure calculated by dividing all of your debt payments by your total income. If a significant portion of your income is spent on monthly debt repayments, it indicates a higher debt-to-income ratio. And a DTI ratio over 40% depicts your potential inability to pay new EMIs.

Your loan approval chances are low in such cases, and you may be charged a higher interest rate considering your debt burden.

Over to you

If you are looking for personal loan with competitive interest rates, turn to Tata Capital. Our interest rates start at just 10.99%.  Moreover, you can avail of a collateral-free loan amount of up to Rs. 25 lakhs.

Our multipurpose loan offerings include easy eligibility terms, overdraft facility, and zero-part pre-payment charges options. You can opt for a flexible personal loan EMI plan and enjoy an extended repayment tenure of up to 6 years.  Besides, apply with minimal paperwork and a hassle-free, 100% online application process.

 Join our list of 1.5 lakh+ happy customers by getting a loan today!

Apply Now

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