You can get Personal loans easily because they are the unsecured kind of loans. They are also multipurpose loans which you can use for different reasons. For example, you can get a personal loan and use it for medical emergencies, academic reasons, vacation, wedding ceremony, or any other reasons of your choice. When brought in comparison to secured loans like car loans or home improvement loans, the interest rate on a personal loan starts at 10.99% that is to say, it’s higher.
There are different reasons for this. When you compare the plans on the recent mortgage rates, it is not on par with the interest rate on your loans. However, the interests on your personal loans could be worse when other factors affect you while applying for a loan. These could be:
- Your Credit Score:
Your credit score and history is a significant factor that must be considered inside-out before applying for a perianal loan. Without a perfect credit history, you won’t even gain access to most loans.
However, you must have maintained a credit score of 750 or more although this is dependent on the lender. However, this is a healthy limit to get a lower interest in your personal loan. Anything lower than this could lead to high-interest rates when your rent date expires.
- Income Level:
If you have a high income, your interest rate will be lesser. Consider it through the logic that the assurance of high income will lead to the trust that you can pay back at the right time. However, your lack of a reliable income or high-income inflow makes them believe you could default on your loan payments thus scaring you with higher interest.
- Poor Repayment History:
Getting a personal loan is a serious business and that’s why you need to have maintained a good repayment history. Automatically, maintaining a good credit score means you must have had a good repayment history too. If you have a poor repayment history, you’ll need to pay higher interest rates as a form of financial discipline.
If you often default in your credit profile, this will affect you. Your lender may not find out but if he does, you’ll be charged an incredibly high-interest rate. If you don’t get this, your application can be rejected. Thus, it’s safe if you have no defaults for more than 12 months before you apply for a personal anywhere.
- Relationship With the Lender:
You may think this is unnecessary, but if you’re loyal to a bank or a lender you want a loan from, you can get a better interest rate on your personal loans. This is because you’ve developed a sort of interpersonal relationship as a loyal customer and you can leverage on this. Most old customers don’t attract high-interest rates.
Thus, the interest rate on any personal loan from your lenders can be outrageously increased for different reasons. It could be a poor credit score, low-income level, poor repayment history, you’re a defaulter, or you have no relationship with the lender.