Understanding Personal Loan Interest Rates: A Comprehensive Guide

Personal loans have become a popular financial tool in India, offering flexibility and convenience for a variety of needs. From planned expenditures to unexpected costs, they provide quick access to funds without requiring collateral. However, a key factor to consider when opting for a personal loan is the interest rate.

Understanding how personal loan interest rates work can help you make informed decisions, minimise costs, and find the best loan option tailored to your needs. Let’s take a closer look at what influences these rates and how they impact your borrowing experience.

Factors Affecting Personal Loan Interest Rates

The following are the essential factors that affect the personal loan interest rates:

1. Monthly Income

The amount and stability of your monthly income heavily determine your personal loan interest rate. Lenders offer lower interest rates on personal loans to people with higher monthly incomes. This is because a higher monthly income reflects good financial health and thus assures lenders of timely repayment of the personal loan.

ALSO READ: How To Get a Personal Loan With a Low Salary?

2. Employment Status

Having a stable job in a reputed organisation and a continuous employment history spanning several years can boost your chances of getting a personal loan at a low interest rate. On the other hand, an abrupt employment history without a stable income source can jeopardise those chances.

3. Creditworthiness

Your credit score plays a significant role in deciding a personal loan’s approval and interest rate. A CIBIL score of over 750 is considered excellent, leading to personal loans at lower interest rates, whereas anything above 600 is considered solid. Keep an eye on your credit score using the OneScore app for free and try to maintain a higher score.

ALSO READ: Are You Creditworthy? Let’s See If You Pass the Test

4. Repayment History

Lenders consider your repayment history to be an essential factor in deciding the approval and interest rate of your personal loan. A good repayment history without any defaults reflects your tendency to pay the dues on time. Hence, ensure that you pay all your previous EMIs and credit card bills on time to get a personal loan at a lower interest rate.

5. Debt to Income Ratio

The Debt to income (DTI) ratio is computed using the following formula,

DTI = (Monthly debt payments / Monthly Gross Income) x 100

Even if you have a high monthly income and a healthy credit score but your DTI ratio is higher, it reflects that you heavily rely on credit. In that case, lenders may offer a higher interest rate on your fresh personal loan, considering the risk of becoming a defaulter. In other words, you must aim to clear your debts within the tenure and then apply for a fresh personal loan to get it at a lower interest rate.

OnePL: An Instant Personal Loan Offered on OneScore App

Access quick funds for personal needs with the OnePL option on the OneScore app. You can get instant pre-approved personal loans of up to ₹5,00,000 with minimal documentation. This process is simple and fast – apply through the app and receive instant approval. There’s no need for complex paperwork or long waiting periods. Whether you’re salaried or self-employed, OnePL offers a hassle-free way to get the funds you need.

The loan is entirely digital, ensuring quick approval and direct transfer to your bank account. With transparent terms, competitive interest rates, and flexible repayment options, we’re committed to making personal loans more accessible and convenient for you.

Summing up, getting a personal loan can be the quickest and easiest solution to address sudden financial emergencies. Remember things such as your credit score, repayment history, and outstanding debts before you apply for one to get it at a low interest rate. Say goodbye to last-minute hassles and getting stuck in a vicious cycle of high-interest debts; say hello to low-interest personal loans!