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What are factors which determine low interest rates for personal loans

Securing a personal loan at favourable interest rates requires an understanding of several.

Edited By: Akshit Tyagi New Delhi Published : Feb 14, 2024 11:57 IST, Updated : Feb 14, 2024 12:24 IST
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Image Source : PIXABAY Loan

In today's day and age, personal loans have become a pivotal resource in an individual's financial toolkit, catering to various needs. However, securing a personal loan at favourable interest rates requires an understanding of several crucial factors and processes.

Debt-to-Income Ratio

The debt-to-income ratio, obtained by dividing total loan payments by total income, influences the interest rates offered on personal loans. A lower debt-to-income ratio indicates better repayment capacity, leading to more favourable loan terms.

Job Profile

The interest rate for personal loans hinges significantly on your job profile and monthly income. Generally, individuals with higher incomes are offered loans at lower interest rates. Conversely, those with lower or irregular incomes may face higher interest rates due to perceived risk.

Credit Score

Lenders assess the CIBIL score or credit score to gauge an individual's creditworthiness before approving a personal loan. A credit score above 750 enhances the likelihood of securing a loan at a lower interest rate. A strong credit score empowers borrowers to negotiate favorable terms with lenders.

Pre-Approved Loan

Banks often extend pre-approved loans to customers based on their credit history. These pre-approved offers eliminate the need for customers to visit the bank, as lenders already possess their credit profiles and extend loan offers accordingly.

Credit History

Maintaining a clean credit history is crucial for securing a personal loan at a low interest rate. Lenders scrutinise borrowers' credit histories to ascertain their repayment behaviour. Timely payment of EMIs reflects positively on one's credit history, increasing the chances of securing loans at favourable rates.

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