Why Should You Always Compare Personal Loan interest rates?: Personal Loans enable you to access quick funds effectively. It is recommended to understand the major factors determining interest rates before applying for an instant Personal Loan.
Personal Loans are collateral-free, and you may use them for various purposes, including weddings, vacations and home renovations. These loans are incredibly alluring and popular due to quick online processing and faster approvals. Personal Loan interest rates are also highly competitive, which makes them the preferred choice of any working professional.
You should, however, extensively study Personal Loan interest rates and other factors that affect the loan cost before applying. You can use the Personal Loan EMI calculator to assess future EMIs before online loan application.
What is a Personal Loan Interest Rate?
To put it simply, the interest rate is the percentage of your loan debt you must pay in addition to the amount you borrowed. Therefore, your loan provider will add interest every time you make a scheduled repayment.
Your monthly payment is split into an interest payment and a balance repayment. The total of both these amounts constitutes your EMI amount.
What is the Optimum APR for Personal Loans?
The Annual Percentage Rate, better known as APR, is the interest rate you’ll pay on the entire loan amount each year. It is beneficial when you get loans with a lower APR.
Types of Interest Rates
Two different interest rates available for Personal Loans are fixed and floating interest rates.
A fixed interest rate remains constant during the loan duration. The benefit of fixed interest rates is that you can plan your finances without worrying about market rate swings.
With floating interest, the rate may vary at any time. This is because various factors, including the government-declared policy rate, can cause changes in interest rates.
The loan term remains fixed, while the interest rates keep changing as per market conditions. Thus, your EMIs invariably go up or down depending on the interest rate. A floating rate loan can save you money when interest rates are low than a fixed rate loan. However, you have to pay more when floating rates are higher than the fixed rates.
Why Do Personal Loan Interest Rates Matter?
Even a 0.5% difference in interest rates can significantly impact y our overall repayment amount. For instance, if you take out a loan for Rs. 5 lakhs with a 5-year term and a 13% interest rate, your EMI would be Rs. 11,377, and your whole repayment amount would be Rs. 6,82,592. However, if your interest rate rises by 0.5% to 13.5%, your EMI will increase to Rs. 11,550, and your total payback amount will climb to Rs. 6,90,295 as a result. So, as you can see, even a small rise in the interest rate on a Personal Loan can get pricey.
What Factors Affect Personal Loan Interest Rates?
Personal Loan interest rates tend to vary from person to person and depend on several variables, including credit score, employment history, income and previous loan repayment history. In essence, the criteria are in place to ensure that the borrower has the capability to repay the loan.
Continue reading to understand the four most important elements affecting your Personal Loan’s interest rate.
Your monthly income significantly influences interest rates on instant loans. This is because lending institutions consider your monthly income when calculating the interest rate. They are confident you can repay the loan if you have a regular job and a significant income, so they offer you low-interest rates. If you have a low or irregular income, the situation is inverted.
Existing loans and liabilities
Lending organisations do not favour having many loans running at once. Even with a high salary, it might not be easy to keep up with repayments on many loans. In such a situation, you may have to take a Personal Loan from a lending institution at a slightly higher interest rate to protect your savings.
Your history of timely payments governs the interest rate of your Personal Loan. The most affordable interest rates are available if your credit history is good. You may have to pay a higher interest rate when you have been defaulting or have defaulted on your loans.
Your credit score
Lending institutions offer the best interest rate to applicants with credit scores of 630 or above. Your Personal Loan application can be rejected outright if your credit score is below 630. Even if you get approval in rare circumstances, a poor credit score will have a higher interest rate.
Why is it Important to Compare Interest Rates on Personal Loans?
Personal Loans are a common way for many people to finance their needs and purchases. However, interest rates on Personal Loans are pretty variable.
Traditional lending institutions may offer affordable interest rate, but their lending and eligibility criteria is cumbersome. On the other hand, new age NBFCs like Clix Capital can offer you competitive interest rates on Personal Loans with a simple, faster, easier and online process.
Applicants can use the Personal Loan calculator available on the Clix Capital website to calculate the EMIs of their future loans as per different interest rates and tenures.
Consequently, the borrower needs to keep their credit score in good standing to qualify for lending institutions’ loans with lower interest rates.
You should thoroughly calculate Personal Loan interest rates before applying for a loan. Lower interest rates enable you to pay off your debt sooner, as repayment amounts are smaller.