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In today’s day and age, personal loans have become a pivotal resource in an individual’s financial toolkit, catering to various needs. However, securing a personal loan at favourable interest rates requires an understanding of several crucial factors and processes.
Debt-to-Income Ratio
The debt-to-income ratio, obtained by dividing total loan payments by total income, influences the interest rates offered on personal loans. A lower debt-to-income ratio indicates better repayment capacity, leading to more favourable loan terms.
Job Profile
The interest rate for personal loans hinges significantly on your job profile and monthly income. Generally, individuals with higher incomes are offered loans at lower interest rates. Conversely, those with lower or irregular incomes may face higher interest rates due to perceived risk.
Credit Score
Lenders assess the CIBIL score or credit score to gauge an individual’s creditworthiness before approving a personal loan. A credit score above 750 enhances the likelihood of securing a loan at a lower interest rate. A strong credit score empowers borrowers to negotiate favorable terms with lenders.
Pre-Approved Loan
Banks often extend pre-approved loans to customers based on their credit history. These pre-approved offers eliminate the need for customers to visit the bank, as lenders already possess their credit profiles and extend loan offers accordingly.
Credit History
Maintaining a clean credit history is crucial for securing a personal loan at a low interest rate. Lenders scrutinise borrowers’ credit histories to ascertain their repayment behaviour. Timely payment of EMIs reflects positively on one’s credit history, increasing the chances of securing loans at favourable rates.
