What is personal loan interest rate

Discover how personal loan interest rates work. Key insights into factors shaping rates for smarter financial decisions.
Personal loan
5 min read
25 January 2024

Personal loans stand as a versatile solution, providing the means to address various financial needs. However, behind the convenience lies an important aspect that influences the overall borrowing experience: personal loan interest rates. Understanding the mechanics of these interest rates is critical for anybody considering applying for a personal loan.

What is a personal loan interest rate?

The personal loan interest rate is the percentage charged by a lender on the amount borrowed. It represents the cost of borrowing and is a critical component of the overall repayment structure. Personal loan interest rates can be fixed or variable, depending on the terms agreed upon with the lender.

The personal loan interest rate depends on numerous factors, each of which has a significant impact on the overall borrowing costs.

Here are 5 factors that affect your personal loan interest rates:

  1. Credit score
    A fundamental factor influencing personal loan interest rate is your credit score. This three-digit number reflects your creditworthiness, summarising your credit history and financial behaviour. Lenders use this score to gauge the risk associated with lending to you. A higher credit score often leads to lower interest rates, as it suggests responsible financial habits and a lower likelihood of default.
  2. Income and employment stability
    Lenders assess if you are meeting the eligibility criteria like income and employment stability to ensure you have the financial means to repay the loan. A steady income and a reliable employment history signal to lenders that you are a low-risk borrower. This stability can translate into more favourable interest rates, providing a tangible benefit for borrowers with consistent financial situations.
  3. Loan amount and tenure
    The amount you borrow and the duration of the loan are crucial factors influencing personal loan interest rates. Larger loan amounts or longer loan tenures may come with higher interest rates. This is because lenders perceive a higher risk in extending larger amounts or allowing longer repayment periods, and they adjust the interest rates accordingly.
  4. Loan repayment history
    Your past behaviour with loans and credit can influence the interest rate offered by lenders. If you have a positive repayment history, and consistently meet your financial obligations, lenders may view you as a reliable borrower. This positive track record can lead to lower interest rates and more favourable loan terms.
  5. Relationship with your lender
    Establishing and maintaining a positive relationship with your lender can also impact your personal loan interest rate. Timely payments, and a history of responsible financial behaviour can build trust between you and your lender. This trust may result in more favourable terms and lower interest rates.

Bajaj Finance offers personal loans at competitive interest rates. You can also use the Bajaj Finserv Personal Loan EMI Calculator to determine the total interest payable. This calculator simply asks you to select your preferred loan amount, interest rate, and tenure.

You can adjust the EMI to match your repayment ability. This calculator also shows the breakdown of principal and interest amounts when calculating the EMI, as well as the total cost of borrowing.

Apply now and get the best offer on our personal loan.

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