In today’s time, personal loan has become a good way to meet the shortage of money- whether it is needed for a holiday or suddenly there is a need for a medical emergency. Earlier, where there was a lot of effort for the loan, in today’s digital era, applying for personal loans is like a pinch of playing, you can arrange funds in minutes by following a few steps on your phone.
For example, Moneycontrol allows you to fully feature digital personal loan. At least processing fees and money comes directly into your bank account. In only three steps you can apply for the loan – fill your details, complete the KYC verification and set your EMI repayment plan.
Now that you have come to know how easy it is to get a personal loan through moneycontrol, then it is also important to understand that the interest rate at which you get a loan can have a great impact on your financial future.
Factors affecting the interest rate of your personal loan
- Income level: Your income plays an important role in determining the interest rate on your personal loan. Lenders see higher income level as financial stability, which can give you a loan on better terms. But if your income is low, then banks may feel that there is a risk in giving you a loan, due to which the interest rate can be higher.
- Repayment History: If your repayment history is good, then the trust of banks increases in you. So lenders usually review your previous repayment record before applying your loan. Due to your bad repayment history, banks are at risk of sinking their loan money. Due to this, those with poor repayment history often get loans at higher interest rates.
- Credit Score: The high credit score shows that the track record of your date repayment is good. Due to which the trust of the lenders increases, they feel that you will be able to repay the loan on time and their money will not be submerged. Therefore, banks offer loans to those with good credit scores at low interest rates. On the contrary, a poor credit score shows the history of dew payment, which can create a big risk for lenders. Those with poor credit scores may have to give more interest on loans or even their loan application can be rejected.
- Date-to-incompatible ratio: Landers use a metric to check your financial health-DTI (Debt-to-Income) ratio. The high date-to-end ratio shows that a large part of your income is already going to the date repayment, which can make it challenging to give further loans to such a person. Therefore, lenders can opt for not giving loans to cover this risk or to give loan at higher interest rate.
How to get personal loan on low interest
- Improve your credit score: Your credit score is one of the most important factor affecting the interest rate. The score above 750 is considered to be excellent and this increases the chances of getting a loan at a low interest rate. To improve your score, check and correct the mistakes regularly in your credit report. Keep your credit utilization ratio less than 30% on all your credit cards and pay all your loans and bills on time.
- Maintain good repayment history: Landers look closely at your previous repayment behavior to understand your ability to repay your loan. EMI and credit cards help a good repayment of the history lenders with timely payment on time of balance. Timely payment of your EMI on time not only increases your credit score, but it also shows financial discipline.
- Reduce your date-to-incomplete ratio: Your DTI ratio shows how much part of your income is already going to repay the debt. Low DTI ratio shows that you are not spending too much financially and can handle the additional date. To reduce your DTI, first focus on repaying high-interest loans.
- Negotate: Do not accept the first offer you get. Different lenders can offer different interest rates. So first compare loan options. Online tools and financial platforms can help you compare the interest rates of different lenders. Do not hesitate to do not hesitate with lenders.
conclusion
You can save a lot of money in the long run by getting personal loan at low interest rate. By knowing about factors that affect the interest rate and to improve your financial profile, you can increase the chances of getting loans on better terms.
Summary
It is very easy to apply for personal loans through digital lending platforms. Know how factors like income, credit score and repayment history affect your loan interest rate and how you can increase the chances of getting loans at low interest rate.
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Disclaimer
This fraction/article is written by an external partner and does not reflect the work of the editorial team of Moneycontrol. This may include references to products and services offered by Moneycontrol.