How Personal Loan Interest Rates Are Calculated: What You Need to Know?

 

A personal loan interest rate can either be fixed or floating. While fixed interest is predictable, floating interest fluctuates according to market conditions. It could be beneficial if the interest rates drop. However, these aren’t the only factors to consider when applying for a personal loan.

Important factors to consider before you apply for a personal loan

 

1. Credit Score

 Everyone is allocated a credit score according to their financial health. It is a three-digit number typically between 300 and 850. A credit score of 750 and above is considered high and eligible for personal loans. However, the interest rate varies according to the credit score.

 

2. Loan Amount & Tenure

The amount borrowed and repayment time also impact the interest rate. For example, a low amount paid over a short time has the lowest interest rate. Conversely, a high amount and long repayment time increase the interest rate in the long run.

 

3. Lender Policies and Offers

Banks and private lenders have different credit policies and offers that affect their interest rates. For example, loyal customers with excellent credit history are offered a low personal loan. You should check lender policies and offers while looking for a loan.