Personal Loan Interest Rates in India, and Your Credit Score

Getting a Personal Loan is a good way to access funds for emergency needs. When you compare personal loans from various lenders, you may find that interest rates vary. Personal Loan Interest rate in India generally range from 11% to 20%. However, these are just the basic rates offered. Depending on various factors, the loan interest rate may change for each individual.

Factors considered for a Personal Loan

Lenders look at income, expenses, investments, other loan commitments, and the credit score of the individual. It is usually easier for salaried persons to get a personal loan than for a self-employed individual. This is because with a salary, the lender is assured of a steady income, while this might not apply for a self-employed person.

Whether salaried or self employed, one of the main factors that influence loan approval and  interest rate is the credit score. Other factors like age (21 to 60), monthly income, business stability etc are considered. However, to assess the person’s creditworthiness, lenders depend on the credit score and credit report.

How Personal Loan Interest Rate Varies

Personal loan interest rate may vary based on the lender. It may also vary based on whether you are salaried or self-employed. Lenders also consider your monthly income, monthly expenses, and your savings and investments.

If you have a steady income, savings, and investments, lenders are more to approve your loan. They may even offer you a lower interest rate.

Role of CIBIL Score

CIBIL stands for the Credit Information Bureau (India) Limited. Established in 2000, it is the premier credit information agency in India. This agency gathers financial information on individuals. This includes information on the various loans they have taken and the credit cards they have.

How CIBIL Appraises a Borrower

CIBIL also gathers information on how each individual manages their credit. It verifies if they pay off their card dues on time, keep up with Loan EMIs, clear their loans on time, and so on. They also look at borrowing habits. This includes whether you have too many simultaneous loans. They also look at the proportion of your unsecured loans to secured loans, and the proportion of loan to income.

If a person has a lot of cards and has maxed out most of them, frequently delays payments, misses EMIs on loans or even defaults on loans. These are all negative marks, and reduces their CIBIL score.

If you are disciplined in your borrowings, and in clearing loans and card dues, you will have a high credit score and your credit report will also be good. The higher the credit score, the better chances you have of getting the loan at favourable interest rate.

CIBIL Score Required for Personal Loan

CIBIL scores individuals on their credit record in the range of 300 to 900. 300 is the lowest score, anything between 300 to 550 sets off alarm bells for lenders. It mostly means that the person borrows heavily and does not have a good record of keeping up with repayments.

Above 550 to 650, one may be considered for secured loans. You have a better credit history and are more disciplined in your repayments. However, for Personal Loans, lenders generally look for a score that is 750 or above.

Need a personal loan? Check your credit score online, and if it's low, try to improve your credit score before you apply. If you are in urgent need of funds, see if you can get a secured loan against an asset. This will be easier to get and will also come at a lower rate of interest. If your credit score is high, you can confidently apply for a Personal Loan. Your loan application would probably be approved quickly, and you will be offered lower interest rates.