Is Interest Rate the Key Factor for Personal Loans?

Until a few years ago, customers would solely check the interest rate of a personal loan before signing up for it.

Even today, the interest rate determines the repayment cycle of these loans, which is why customers must know about it before signing up for a loan. However, instant loans require customers to focus on a few other features as well.

What Is A Personal Loan Interest Rate? 

Before getting into the details, it is important to know what interest rates are on a personal loan. When we think about such loans, we automatically get redirected to closed-end credit. The latter has preset monthly payments for a fixed period. Interest rates on a personal loan are written as a percentage of your principal. 

The rate mentioned is the nominal annual percentage rate. This is the applied rate on your loan annually and usually includes fees and other charges. However, it doesn’t include costs that are an effect of inflation or compounding. Maximum personal loans make use of a monthly periodic rate. 

It is needless to mention that a lot of personal loans are usually unsecured. This indicates that these loans are not backed up by assets that the lender might take into his possession. However, one might secure the loans by combining something valuable as a backup. 

Comprehending Interest Rates Of A Personal Loan

To create loans, banks themselves have to borrow the money first. They might borrow it either from other banks or from the deposit of a customer. Interest rates on a personal loan determine how much it will cost for the bank to borrow money. 

Additionally, there is an inherent risk included in money that will not be guaranteed to be repaid. When it comes to determining a personal loan interest rate, there are usually three significant factors:

Creditworthiness Of The Borrower:

Borrowers having a high credit rating are likely to receive better rates since they are at a reduced risk of default. Lenders might also consider the income as well as the employment status of the borrower. These tend to influence the likelihood of repayment. Moreover, borrowers having a low income or missed payment history might receive a higher rate of interest. 

The Loan Length:

Lenders have the opportunity to gain more benefits from long-term loans as compared to short-term ones. Since the debt takes more time to receive interest, it offers a lower rate for a long-term loan. Additionally, certain lenders might charge the borrowers a prepayment penalty who pay back their loan amounts quickly. 

The Borrowing Cost:

Banks tend to borrow money from each other at interest rates based on the rate of federal funds. This cost later gets passed on to the customer. Suppose the cost of borrowing money cost is higher; the rate of interest on personal loans will scale up.

Considerations Before Opting For A Personal Loan

You can make the most out of a loan by considering some important factors. Read the next portion of this article to find five features, along with the interest rate, that you must consider before selecting the loan.

An Ideal Personal Loan Must Offer A High Loan Amount And A Low-Interest Rate

Having a significant amount at your disposal can help you meet any urgent expense. Therefore, you must prioritize a high personal loan amount while signing up for an instant loan.

IDFC FIRST Bank, for instance, offers a loan amount of up to ₹ 1 crore through its personal loans. Additionally, your personal loan must charge you a lower interest rate. IDFC FIRST Bank also offers competitive personal loan interest rates.

You Should Be Able To Apply For An Instant Loan

Banks have simplified the process of applying for personal loans via instant loans. Customers need not pledge any collateral, and the application procedure is digital. IDFC FIRST Bank’s loan follows an efficient application process that takes less than five minutes. Upon approval, IDFC FIRST Bank disburses personal loans in less than thirty minutes. You can also take the help of the payday loan. You can do it through a payday loan app.

Prefer A Personal Loan That Lets You Calculate Your Emis In Advance

IDFC FIRST Bank’s personal loan EMI calculator is an efficient tool that helps customers precisely estimate the value of their future EMIs. This can help customers assess their affordability and decide on an appropriate loan amount. Knowing one’s EMI amount before taking a loan can also help in planning for one’s future expenses by accounting for the loan repayment.

Choose A Personal Loan With A Flexible Loan Tenure

You must choose a personal loan that offers a flexible tenure. IDFC FIRST Bank’s personal loan EMI calculator can help you select a preferred tenure for your loan in advance. Using a financial calculator before taking a loan is helpful since it helps you know more about your loan’s repayment procedure.

Your Bank Must Offer A Balance Transfer Facility

A balance facility is when a bank allows you to shift your loan or credit card’s outstanding balance to another lender offering a lower interest rate. IDFC FIRST Bank’s online loans, too, offer a balance transfer feature that allows you to change course during your loan repayment by opting for a different lender.

Applying for a loan is easy today thanks to efficient mobile banking services like IDFC FIRST Bank’s mobile banking app. Customers can apply for an instant personal loan through the app and open a fixed deposit (FD) account in a few minutes. You must choose a technically resilient mobile app to access the details of your personal loan repayment.  

Summing It Up

Personal loan interest rates might vary largely, and there is nothing we can really do about it. However, with the above-mentioned guidelines, you can make an informed decision about the type of loan you should opt for. If you are still confused, seek help from professionals. 

So, that was all about personal loan interest rates and how they are an impeccable consideration while applying for online loans. Did you find this article helpful? Share your thoughts on this by commenting below. 

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