Finance

Read On To Know The Parameters That Impact Your Personal Loan Interest Rate

You avail of a personal loan to meet your financial exigency, expenses linked with the wedding, medical bill payment, home renovation or debt consolidation. You, as an applicant for a personal loan, are free to use the loan proceeds for any purpose; however, for specific personal loan variants like a medical loan, travel loan, or wedding loan, you may require presenting the purpose for which you are availing the loan to certain lenders. However, note that most lenders like UCO personal loan,

Bank of India, Axis Bank, HDFC Bank, ICICI Bank, IndusInd Bank, Bank of Baroda, etc., will not ask you to list down any reasons for using a personal loan before using it. Major parameters that impact your personal loan application are your repayment capacity and credit score. The personal loan generally comes with a lower repayment tenure of up to 5 years, a higher rate of interest, and a stringent eligibility parameter. Before placing an application for a loan, it is a great idea to review your personal loan eligibility. 

Also, note that before availing of the loan, if you have any queries, then you can straightaway approach the lender to get an answer to the query you have. For instance, suppose you are availing of a UCO personal loan, and you have specific queries linked with the UCO personal loan rate of interest, offered loan proceeds, and other terms and conditions. To get an answer to such queries, you can straightaway call up the UCO bank balance enquiry number.

Personal loan interest rates

Personal loan interest rates in India usually lie in the range of anywhere between 10 percent and 24 per cents p.a. Annual percentage rates or APR are generally very higher for personal loans than other kinds of credit options in India. It is basically because personal loans are generally unsecured debts. They hardly come with any type of security or collaterals. The 3 basic reasons for a higher rate of interest include the following – 

Security or collateral

Securitization and reconstruction of the financial assets & enforcement of the securities act or SARFAESI act permit financial institutions and banks to cease as well as auction the car, home, or commercial property in the case of default in auto, home, or commercial credit options, respectively. It means that the home, business property or car act as security or collateral for such kinds of loans. Thus, the risks for a financial institution or bank in a car or home loan are way less.

However, for personal loans, there’s zero collateral or security requirement in the case of default by the loan borrower. So, here the major credit risk is high for lenders. To adjust such risk parameters, lenders may charge a higher rate of interest on a personal loan. The risk rating is a prominent parameter that assists determine the rate of interest. 

NPAs or non-performing assets for banks

Personal loans generally have a higher rate of default than car or home loans, as there’s zero asset security. Owing to these reasons, lenders witness an increased percentage of NPAs (non-performing assets). To make up for this, they charge a higher rate of interest on personal loans and education loans because both are unsecured credit options offered just based on your repayment capacity and credit history; for auto and home loans, when the lenders’ auction security has a chance to recover as well as lower the NPA. However, there are zero such chances in the case of personal loans. 

Urgency

You often tend to opt for a personal loan in the scenario of urgency. Such urgencies may be because of emergencies linked with debts, hospital or medical bills, wedding or marriage expenditures, arrangement of the down payment for purchasing a home or car, etc. Financial institutions and banks take benefit of this scenario and provide loans at a higher rate of interest.

Also, personal loans are most probably one such credit option for NBFCs and banks that tend to charge an additional fee for this. With this, they try and lower the overall non-performing asset proportion of the bank’s overall assets. Taking benefit of such a situation and factoring all parameters linked with the applicant’s profile, loan amount required, repayment potential, existing borrowings, and others, the lenders endow personalized personal loan rates. To zero in on the prudent personal loan EMI and know your overall interest constituent from before, use the online personal loan EMI calculator. 

Requirement for a better personal loan rate

As previously discussed, personal profile even matters quite a lot for financial institutions or banks to determine your rate of interest for a personal loan. So, surely there are several parameters that you must factor in to enjoy a lower personal loan rate from the lender of your choice. Here are a few – 

∙  Ameliorates your credit score

∙  Add in a co-applicant that has a strong credit score

∙  Repay your existing outstanding debts

∙  Consider as well as analyze thoroughly the amount you require borrowing

∙  Factor in the loan tenure that you can serve as per your repayment potential

∙  Ameliorate your debt-to-income (DTI) ratio

∙  Clarify the purpose of personal loan from the very starting

Personal loans for self-employed individuals may have a few considerations involving presenting financial statements of your firm or company from the past few years. It is recommended to think from the lender’s point of view. If you apply a prudent approach regarding what the bank may think about your application to determine your interest rate, then you may be in a better position. You may even carefully examine the necessity of a personal loan.

You must surely not avail of the credit option for the purpose of splurging as well as for unavoidable expenses. Also, you must not avail of this while you are rebuilding your creditworthiness or credibility. Also, it is important to carefully consider the fund that you want to borrow and make sure that you avoid borrowing more than your affordability. You can check this using an online personal loan EMI calculator. Through the online personal loan EMI calculator, you can understand the monthly amount you must pay. As per this, you must carefully factor in the monthly EMIs and overall interest constituent on the personal loan according to your cash inflow and repayment capacity.

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