Forces Behind Personal Loan Interest Rates

An interest rate is a subject of the supply and demand for the credit. When it comes to the demand for credit, an increased demand increases the interest rates and the decreased demand decreases the interest rates. On the other hand, the case is totally opposite with the supply of credit as the increased supply reduces the interest rates and the decreased supply increases the interest rates. Hence, depending upon the demand and supply of credit, the personal loan interest rates are decided.

Personal loan interest rates are the cost of the borrowing money that the borrower has to pay to the lender. Personal loans are usually unsecured loans that help you fulfill your personal desires. This loan is designed for the people who want to fulfill their desires but are falling short of money. So, whether you want to travel abroad or want to go for foreign education or have planned a big fat wedding for your child, a personal loan is an apt solution to all your financial needs.

personal loans interest rates

Talking about the forces behind personal loan interest rates, the lender-borrower relationship, supply and demand for the credit, inflation and the government play the key roles in deciding the interest rates of a personal loan. Since all these are dependent lenders takes the risk of giving funds, there are some set parameters on the basis of which they offer rates and these parameters are variable from lender to lender.

Why do interest rates on loans tend to be higher in a strong economy than in a weak one?

Most people find it difficult to understand the reason behind the higher rates on loans in a strong economy. Here are the simple reasons:

    • A strong economy tends to have high inflation and hence the rates are higher.
    • Borrowers in a strong economy are more likely to default on their loans so the rates are correspondingly high.
    • The demand for credit is high in a strong economy which increases the rates
    • Interest rates determine the strength of the economy, so the high rates actually keep cause a strong economy.

 

 

Factors affecting Personal Loans interest rates-

Monthly income: When it comes to interest rates, you are most likely to get lower rates if your earnings are higher.

Credit history: A healthy credit history that is if you have a good payment record, it will be an additional benefit.

Category of your employer: For a personal loan, the category of your company plays a very important role as the rates offered to the special companies is lower than the general rates.

Relationship with the bank: If you are an existing customer of your lending bank, you might get the privilege of paying lower interest rates on personal loans.

Which bank gives lowest interest rate for Personal Loan?

The interest rates offered are calculated on the basis of the details as discussed above. You can also check your personal loan eligibility with the help of the personal loan eligibility calculator and compare personal loan interest rates to make the right choice. So, the stronger your profile will be the more options you will have to choose from and hence the better rates you can get. For your reference, here is the list of the banks that give lowest personal loan interest rate:

  • SBI personal loan interest rates: 12.45% p.a. onwards.
  • HDFC personal loan interest rates: 15.75% p.a. onwards.
  • Personal loan interest rates Axis Bank: 15.50% p.a. onwards.
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