6 Factors That Play an Important Role in Determining Your Personal Loan Interest Rates

6 Factors That Play an Important Role in Determining Your Personal Loan Interest Rates

For many of us, there are moments in life when we are faced with a financial need that we cannot meet on our own. The reasons behind the need for a personal loan can have to do with anything from a large personal purchase to an unexpected situation or emergency. In those moments, we find ourselves navigating between banks and loan providers, often alone and unaware of the knowledge necessary to understand what makes loan interest rates what they are.

Determining what kind of loan would be best for you, in the long run, can seem like a daunting task. There are a lot of factors that make a personal loan accessible to individuals at different interest rates. Determining how you stand in the eyes of your loan provider when seeking a personal loan can be nerve-wracking. This quick guide will give you a glimpse into what could make or break your chances at getting a low personal loan interest rate.

Understanding Credit Scores

A credit score is a numerical indication of an individual’s ability to repay loans in a timely manner and how creditworthy they are. In determining the interest rate for a personal loan, having a high credit score means that you are more likely to be offered interest rates that are lower. A low credit score, however, usually indicates to a loan provider that the individual has a difficult time making payments, and therefore could be a high risk for the financial institution.

Income vs Interest

When deciding the fate of a person’s loan interest rate, the loan provider looks into the applicant’s annual income. In most scenarios, a person with a higher income is seen as low risk by loan providers and are more likely to be offered a lower personal loan interest rate. Having a lower income annually means that an individual may have to pay a higher rate of interest.

Employer Details

Many will be surprised to learn that whoever their employer is and how long they have worked there can affect their interest rate. Working for a well-known and respected company can show a financial institution how reliable your income will be and provide good faith that you are going to maintain your employment, and this may help in securing a lower interest rate.

Nature of Employment

Being a salaried employee can be very beneficial to an individual seeking a personal loan. Having a consistent fixed income versus inconsistent income or being self-employed shows a loan provider that the individual applying for the loan will bring in income on a schedule, in turn, is a lower risk for the institution.


An applicant’s age can also have an effect on how high an interest rate is offered by a loan provider. Younger adults and individuals near or in retirement are likely to be charged a higher rate of interest.

Relationship with Loan Provider

If you are already an existing customer of the loan provider, and you are in good standing with the financial institution, there is a possibility that they will offer you an interest rate that is lower. It is solely the decision of the financial institution and there is no guarantee that any single individual will be offered the same interest rate as another existing customer.

Before you set out in search of a personal loan, it is important to take a look into your own financial history and determine if all of these areas are compliant with the criteria for a loan from the financial institutions you are selecting from. Being mindful of your relationship with your personal bank may be a way to secure a lower rate of interest. Whether you are simply seeking information or are seriously considering moving forward with a personal loan, being armed with the correct information can save you from selecting a personal loan with a rate of interest that is too high for you.

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