Friday, July 8, 2016, AM | 1 Comment
Summary: Personal Loans offer easy and quick cash, but even these loans come with a cost—interest rates. Read on to figure out what Personal Loan interest rates are all about.
Almost everyone saves, be it money or supplies, for a rainy day. But high inflation often eats into your savings, leaving you in a crunch when there’s a need for immediate cash. Personal Loans are one of best options to consider to solve all your current money problems.
These loans come in handy when you do not have well-off friends or family to rely on. The money raised through Personal Loans can be used for anything, from financing a new car to renovating your home and from wedding expenses to medical expenses. The ease of availability of these loans also makes it a popular option among a majority of borrower.
Even though Personal Loans come in handy when you do not have any other savings, one must not forget that this loan has to be repaid, that too with interest. The interest charged on these loans usually depends on the lending institution and a number of other factors.
But probably the biggest aspects of a Personal Loan is its interest rate. The charge is higher than any other type of secured loan, and is second only to the interest rates charged on credit cards. This is mainly because you do not need to provide any form of security or collateral to the bank to get a Personal Loan.
Moreover, the documentation process is quite easy and convenient.
Let’s take a look at what the factors that determine your interest rates:
Your Source of Income
The source of your income goes a long way in determining what interest rate you will be charged. If you are employed with a reputed company, the lender can rest assured that you have the financial ability to repay the loan; thus resulting in low interest rates.
On the other hand, for self employed individuals, the risk is higher as there isn’t a proven source of income, meaning a higher rate of interest for them.
Employee Recognition and Status
Your employer is just as important to the bank as you are. The status of your employer assures the bank that your source of earnings is safe and reliable, which could result in a lower Personal Loan interest rate.
Banks usually maintain a list of reputed employers, and it would benefit you if your company is on it.
Your CIBIL Score
The Credit Information Bureau of India Limited keeps a track record of the credit history of almost all individuals. Everyone is ranked according to their past credit payments or how clean their records are when it comes to clearing their debt.
A higher credit score means there is a good chance you will repay your debt on time while a lower score means higher the risk of your loan resulting in a bad debt. Therefore, if you have a good credit score, better are your chances of securing a Personal Loan at low interest rates.
Past History with the Bank
If you are an old, loyal customer of the bank and have made heavy transactions with them, you might be able to secure a loan with a lower interest rate.
Your relationship with the bank assures them you are in a position to pay back the debt you are about to incur.
Moreover, you might even be able to get extra benefits in the form of bonuses and offers through your positive relationship with your lender.
At the end of the day, you can always negotiate with the bank. This obviously depends on your personal skills.
The interest rates might not change much but when the principal amount is huge, every rupee saved — through negotiations — helps.
The Personal Loan interest rates depend heavily on the factors mentioned above. Apart from these, each bank has a different set of Personal Loan eligibility criteria for potential borrowers.
Therefore, before you apply for a Personal Loan it is necessary that you compare the individual interest rates of various lending institutions and go for one that offers the best for your needs.
Once you’ve checked all there is needed to be checked, you can sign the contract and avail a solution to your financial woes.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.