A personal loan can be availed for meeting monetary mismatches in weddings, home renovation, paying medical bills or for consolidating your debts. You as a borrower are free to use the loan for any purpose. The primary parameters that impact your personal loan application are your repayment capacity, credit score, and income. This loan option generally comes with a shorter repayment tenure of usually up to 5 years, a higher rate of interest than secured loan options and stringent eligibility parameters owing to its unsecured nature. Thus, before hitting on the personal loan apply button, ensure to review your eligibility and the offered personal loan interest rate for a better deal as per your budget.
Note that, the personal loan interest rate varies from lender to lender, which infers that the rate offered by one lender may not be the same for another lender. So, you must ensure to compare different lenders based on important factors like personal loan interest rate, processing charges, tenure, etc. to zero in on the suitable one. To select the lender as per your suitability, you must use an online personal loan EMI calculator. With this calculator, you can conduct numerous computations to derive a suitable EMI, interest constituent and repayment tenure as per your cash inflow and repayment capacity.
In case you fail to take this step, you may unfortunately opt for a lender charging a higher personal loan interest rate. While failing to compare amongst lenders is one of the reasons for not availing a suitable personal loan interest rate, there are other reasons too for the lenders to not offer you a lower personal loan rate. Read on to know the reasons –
- Low credit score
After applying for a personal loan, one of the initial things that your lender checks is your credit score. CIBIL in India is one of the most respected credit bureaus that provide your score details to lenders. For instant approval on a personal loan with a lower interest rate, you must have a CIBIL score for personal loan of 750 and above. If you do not have a score of 750 and above, you either may not be allowed to avail a personal loan or will be allowed to use the loan proceeds at a higher personal loan interest rate. A higher personal loan interest rate is charged by lenders to make up for the credit risk involved because your low score indicates your undisciplined credit behaviour, which makes them doubtful about your repayment potential.
- Low income
While processing your application for a personal loan, one of the crucial personal loan eligibility criteria considered by the lender is your income stability. If you hold a lower income than the required criteria or the profession you are in is volatile or prone to risk, then you have a high chance of personal loan approval at a higher interest rate than other salaried individuals with a stable income employed with a reputable organisation.
- Job instability
Financial stability is extremely valued when it is about offering a loan to you. If you constantly switch jobs, then you may be viewed as an unstable candidate for a personal loan by the lenders, making them less confident and doubtful about you. While in such cases, most lenders may turn down your application for a personal loan, others may accept it at a higher personal loan interest rate.
- Multiple loan applications in a short time period
Once you hit on the personal loan apply option, the concerned lender pulls out your credit report from the bureau to examine your creditworthiness. Such direct fetches by lenders are known as a hard enquiry, for which the bureau lowers your credit score by a few points. Making multiple such requests for loans drastically reduces your credit score, which reduces your chances of availing personal loan at a lower interest rate.
You can avoid this easily by approaching online financial markets to choose the lender of your choice from the multiple offers available. While online lending markets also fetch your credit report to understand your credibility to offer you different personal loan deals, such fetches are called soft inquiries, which do not harm your credit score in any way and hence your chances of availing a loan at a lower interest rate remain intact.
Before you place an application for a personal loan, strike a comparison amongst different personal loan lenders through the online financial markets to zero in on the suitable one without hampering your credit score and your chances of availing the loan at a lower rate. Also, as the requirement for a personal loan can come up at any time, ensure to maintain a good credit score by following responsible credit behaviour. Doing so will keep your credit score positive, which will allow you to qualify for a lower personal loan rate.