Times When Personal Loan Interest Rates Rise for Borrowers

Last Updated : Nov. 19, 2020, 7:38 p.m.

Given the wide-ranging utilities of a personal loan, people often apply for this credit to meet their various financial needs. The accessibility of this loan without any collateral coupled with seamless documentation makes it even more appealing for borrowers. But if the personal loan interest rate is high, all that appeal and utility might feel negligible! The greater rate increases the Equated Monthly Installment (EMI), and you might feel a bit burdened paying the same. Any idea, when does the lender hike the interest rate? No! We will tell you about such situations in this post. Let’s get started!

So What Makes Lenders Increase the Personal Loan Interest Rate for Borrowers?

Personal loan interest rates range from 10-25% per annum across most lenders in India. Some lenders can increase the rate even beyond 25% for some borrowers. While an interest rate of 10-15% can be called reasonable, the interest rate of 20% and more can be considered quite high. Lenders charge higher rates when someone earns less, have a not so high credit score, work in a lesser-known company, or have higher debt obligations. Let’s read about these in detail.

Personal Loan Interest Rates Rise When You Have Not So Good Credit Score

Credit scores talk a lot about one’s creditworthiness and determine whether an individual can get a personal loan or not. Lenders approve personal loan applications of individuals having a credit score of 750 and above. But even if you have a score of around 700, you can get a personal loan but at a higher interest rate. Some lenders also offer personal loans to people with a credit score of less than 700, albeit at a higher rate of interest.

Personal Loan Interest Rates Rise Even When You Earn Less

People earning high not only enjoy a hassle-free loan approval but they are also rewarded with a lower rate. The same can’t be said for people earning less. They will find it hard to gain the nod of the lender and have to contend with a higher personal loan interest rate. A lower income creates possibilities of payment skips or even a default later, thus translating into a higher interest rate.

Existing Debt Obligations Can Also Raise the Interest Rate

Existing debt obligations lower your repayment capability and make lenders increase the personal loan interest rate. For instance, both you and your friends earn the same and have a relatively good credit score . But while you are paying a car loan EMI, your friend has no debt obligations at present. In that case, you could bag a higher personal loan interest rate compared to your friend. In case your existing obligation makes it hard for you to pay the proposed personal loan EMI, the lender can reduce the loan disbursal amount too.

Personal Loan Interest Rate Can be Quite High If You Work in a Very Less Known Entity

The reputation of the company where you work also plays a critical role in setting your personal loan interest rate. Someone working at top-notch firms will get the loan at a much lower rate compared to someone employed at lesser-known companies. Working at lesser-known companies creates an impression amongst lenders that you may not have a regular flow of income, which could lead to higher personal loan interest rates.

What Will be the Interest Rate If Someone Does Not Have a Credit History?

Having a credit history is paramount when it comes to getting smooth approval for a personal loan. But even if you don’t have a credit history, you can get this loan. The bank where you have a salary or savings account for long can trust you with a personal loan. As far as personal loan interest rates are concerned, they will depend on your banking relationship, income and your organization. So, the rate can be lower or higher depending on how you fare on these points.

Compare Personal Loan Interest Rates of Different Lenders

Sometimes due to ignorance, people find themselves paying a personal loan at a higher rate of interest. They don’t compare the personal loan interest rate of lenders and apply without any discretion. The result is obvious – higher EMI and interest obligations. So, we have shown the interest rate of top lenders for you to compare and choose out of it.

But How Can You Assess the Cost of Personal Loan by Checking the Interest Rate?

Personal loan interest rates will dictate the EMI and interest obligation as pointed out above. You can thus use the Personal Loan EMI Calculator to ascertain the installment and overall interest amount payable. All you need to do is enter the loan amount, interest rate and tenure in the calculator.  Now that you know the interest rate range of different lenders, you can experiment with different values and choose the best repayment option for you.