Six Factors Affecting Your Personal Loan Interest Rates

Individuals may take loans for a multitude of reasons. With increased consumption of services and commodities and surging expenses, the demand for personal loans has increased manifolds.

However, before making a financial commitment of such a significant degree, it is important to understand personal loans and the factors that affect the interest rates of your personal loans and other related factors.

What is a personal loan?

Personal loans are unsecured collateral-less loans to solve your immediate financial needs. These loans require minimum documentation, usually do not require collaterals, and can be disbursed within a short span of time.

And, there are many entities like Money View that not only offer easy-to-apply options for personal loans, often listing out the best choices depending on your needs and eligibility, but provide instant personal loans themselves. These portals often also provide services like EMI calculation and quick processing.

There are a number of factors that will consistently determine your eligibility and interest rate for prospective lenders, which have been covered in the following sections.

Personal loans: Pros

The personal loans pros include:

  • Flexibility and versatility
  • No need for collaterals
  • Helpful for immediate/sudden needs
  • No specific reason is required for applying
  • Lower interest rates
  • Higher borrowing limit

Personal loans: Cons

Like all financial commitments, personal loans come with their fair share of drawbacks too. The cons include:

  • Higher penalties
  • Debt accumulation
  • High service charges
  • For first-time borrowers, credit cards might provide lower interest rates

To counter these drawbacks, borrowers must not only pay attention to all offer documents but also conduct rigorous research to arrive at informed decisions.

Money View offers a multitude of services in one consolidated form. Users can apply for affordable-interest-rate loans with minimal documentation and calculate EMIs for personal loans, know in detail the interest rates, lenders, eligibility, credit score, etc. This is a more convenient option for both first-time and experienced users.

Common reasons for taking personal loans

Personal loans are a great way of adding cash inflows when you need them. Situations that require quick and larger-than-usual expenses like:

  • Medical emergencies
  • Higher education
  • Financial boost for business
  • Recreational use, like vacations
  • Home renovation/decoration
  • Wedding
  • Repayment of high-interest-rate debts
  • Credit card payments

Eligibility criteria for applying for personal loans

The eligibility criteria for personal loans vary, depending on factors like age, income bracket, career level, and payment history. Besides, lender policy can also influence both eligibility and interest rates. Anyone between the ages of 21 to 68 can apply for a personal loan. Among other eligibility criteria are:

  • Working individuals employed for 2+ years
  • People with a regular monthly income of at least Rs. 5,000
  • Users with a CIBIL score of at least 750

There are other eligibility criteria beyond the ones listed here, which differ with different lenders.

Hence, before applying for a personal loan, it is essential to understand where you stand and have the proper documentation for it.

Money View not only lists this information but also allows you to check your eligibility based on the city of your residence as well.

Factors Affecting Your Personal Loan Interest Rates

Going deeper, we can identify a few factors that would influence your eligibility and determine the interest rates offered to you by your respective lender. The following factors can affect your personal loan interest rates significantly.

Income level

Personal loans come with immaterial/intangible collaterals. This means the lender conducts thorough research on the borrower’s (anticipated) ability to repay the loan. Hence, in this context, your income will form the very basis of the approval of your loan. Apart from age, this is the fundamental factor on which personal loans depend.

As an easy rule of thumb, the higher the borrower’s income/disposable assets, the higher their reliability. Hence, lower the interest rates. Stability of income on the borrower’s part has a similar proportionate effect on personal loan interest rates.

Credit score

A credit score can be defined as a quantification of an individual’s creditworthiness. This score is arrived at by credit bureaus based on the individual’s credit history, i.e., if they have repaid any previous loans taken. In India, CIBIL (Credit Information Bureau (India) Limited) provides users with their credit scores.

A credit score is a three-digit number and forms one of the major ways in which a prospective lender gauges their customers’ fiscal reliability.

Rule of thumb: higher your CIBIL score, the lower the interest rate.


Employer reputation

Economic stability translates directly to creditworthiness. In this regard, especially for salaried persons, the reputation of the borrower’s employer often sways the favor of the lender.

Being employed at a larger, more established organization invariably results in lower interest rates on your personal loans.

Employment status

Continuing on the same topic, being a permanent or full-time employee, especially in domains such as government service or public sector undertakings, guarantees lower interest rates charged by lenders. Tenured individuals are also given preference for lower interest rates.

Note that specific lenders may impose a cap on the minimum years of service or business the customer must complete to be eligible.


Repayment history

Repayment history is also one of the most critical factors that determine the buyer’s personal loan interest rate. In the case of outstanding loans, lenders can either outright reject the application or charge significantly higher interest rates to cover service charges.

Debt-to-income ratio

While earning an excellent monthly package from a reputed employer can help increase your creditworthiness, if a large part of that package is spent repaying outstanding loans, it might have an adverse effect on your loan request/interest rate.

A lower debt-to-income ratio ensures lower interest rates.

Defaulting on repayments

Most lending organizations, i.e., banks, impose restrictions on personal loan applicants with a history of loan defaulting. These sanctions might vary from outright rejection of the loan request to lenders imposing a cap of at least 12 months of no defaults to charging higher interest rates for approval.

Relationship with lending entity/bank

Having a pre-existing and especially long-lasting relationship with the user’s bank of choice can make their personal loan approvals easier and also fetch them lower interest rates.

Lending banks invariably prefer loyal customers, such as long-standing account holders or even past borrowers who have repaid their loans on time, and often offer them reduced interest rates and other exemptions.


Personal loans, or loans of any kind, require careful consideration and planning. Choosing the right banking partner can be as vital as having your collateral and documentation in place. It is also highly recommended to carefully read the fine print on the agreements and plan your finances before committing to a personal loan.

It is additionally helpful to have miscellaneous information, such as preferred EMI range, eligibility, and prospective interest rate bracket that you fall under before applying for personal loans. One-stop destinations for such details are apps or websites like that of Money View, which list these out in one place for users’ convenience.

Now that you are aware of the various factors that determine your personal loan interest rates, you can make an informed decision after conducting detailed research before applying.