4 ways eligibility impact interest rates on personal loans?

A personal loan is a financial instrument extended by banks/NBFCs to individuals and entities to fulfill any of their needs. You need not disclose the nature of the requirement or give justification of how the money has been spent. The second major aspect of Personal Loans is that they are unsecured in nature and you need not submit a collateral or guarantor to be eligible for them. These criteria make Personal Loans an extremely risky instrument of credit and Banks/NBFC’s are really careful in extending them. Here are some of the banks and NBFC's who give out Personal Loans.

But you might ask that if they are so risky then why do these financial institutions give out Personal Loans? This is because as with everything in life with higher risk the rewards are also higher. Banks/NBFCs are able to charge a higher interest rate on Personal Loans than many other investments and this factor makes them lucrative. There is a careful balance which the institutions need to tread which impacts interest rates vis-à-vis the eligibility. Click on the links to read about Interest rates on Personal Loans and Eligibility for Personal Loans. This is where a single factor can be the difference between a low rate of interest or something higher.

So what are these factors which impact rate of interest and how? Let us take a look:

-       Company you work for: This is one of the most critical factors when banks/NBFCs calculate your rate of interest. Normally all these institutions have a special classification of companies into 3 tiers. The biggest and well-known companies are grouped in tier I, the next set in tier II and so on. And institutions have standard rates, all other things being constant, across these tiers with the first group getting the lowest. So if you work for a tier I company, you have a good chance of getting a lower rate of interest. 

-       Salary: This is the second most important factor in determining if you get a low rate of interest. And the distinction is fairly obvious that the higher your salary, the lower interest rate you will be charged. In combination with a tiered company the rate can be even lower.

-       CIBIL score: the third important factor in this process is your CIBIL score. It is a rating given to you centrally based on your financial records for atleast the past 6 months. A score between 300-900 and a higher score indicates a clean record of loan and card payments which ensure you get a lower interest rate. To learn more about CIBIL scores and how they are awarded visit this site.

-       Current EMIs: the final factor which impacts interest rates and also approval is the existence of current EMIs or overdue card payments. If you have these, you need to demonstrate the capability to pay off a new loan. And even if you do, the banks might still charge a higher rate because it is risky to extend a loan in such a case. Click on this link for a blog on what to do to get a loan with a bad credit history.

So take note of these factors before you apply for a loan and if in doubt visit a loan aggregator site which can calculate your eligibility and also your expected EMIs. So whether you are in Pune, Hyderabad, Lucknow, Kochi or Ahmedabad you can always check on these rules and click on the city name to know more about getting a Personal Loan in your city.