A personal loan can help in an emergency or when you need extra cushion. Personal loans help you reach your financial goals without disrupting your regular budgeting. The Reserve Bank of India raised the repo rate in December 2022 to 6.25%. The interest rates for bank loans were affected by this.
The impact of increased personal loan rates on borrowers
An increase in repo rates will increase floating rate interest. The rise in floating interest rates is causing a rise in EMIs. Because floating interest rates fluctuate with repo rates, borrowers should contact their lenders to ask if the rate increase is limited. To ensure their monthly payments stay the same, borrowers should request a modification in their loan contracts.
If the interest rate is fixed, the EMI the borrower, pays will not change.
The interest rate for new borrowers would be higher. The new repo rate will be a burden for them.
Factors affecting interest rates on personal loans
- Income — A higher income will help you get loan approval faster. Lenders are more comfortable with applicants who have a regular and stable income. To determine an applicant’s creditworthiness, lenders will also consider the debt-to-income ratio.
- Employment history– Lenders will consider a stable job and a good employment record when approving your loan. If you are employed by a government agency or a well-respected private company, your chances of getting a personal loan with a low-interest rate are high.
- Credit score – A higher will help you get a personal loan. Lenders consider credit scores of 750+ as an indicator of creditworthiness. Lenders will approve a credit score below 750, but the interest rate and terms may be higher. Higher credit scores also increase the negotiation power of an applicant.
- Age – If you are too young or close to retirement age, your loan application will unlikely be approved. Your loan application may be approved if you have been in your current job for several years and see a bright future.
- Maintaining a Relationship With the Bank – If you are loyal to your current bank, your chances of getting a loan will be high. If you have paid off your bank dues promptly, they may be willing to offer another loan with a low-interest rate.
Documents Required for a Personal Lending
Documents required by lenders can vary from one to another and on a case-by-case basis. The list below includes the most common documents requested by lenders. The lender may ask for additional documents or ask for none at all.
- Aadhaar Card
- Address proof: Passport/Voter I.D./Driving license/Aadhaar Card
- Income proof: Bank statements from the past three months/Passbook of the previous six months/Last two months’ salary slips/Form 16.
How to Apply for a Personal Loan via CreditMantri
- Explore the different options for personal loans. Click “Know More” for interest rates and charges.
- Click on “CHECK ELIGIBILITY.”
- Fill in the details such as Email ID, Phone number, Loan Amount Requested, Full Name according to PDF Card, Date of Birth, Residence Pin Code, Residence City, Gender, Marital Status, etc.
- Click “Next”
- Continue to fill out the remainder of the application.
Conclusion
A change in the repo rate has little effect on personal loans. In the floating rate method, however, the interest rate on personal loans will increase with a change in the repo. Changes in the repo will have the most significant impact on new borrowers.
FAQ: What do rising personal loan rates mean to borrowers
1:Are changes in repo rates affecting personal loans?
If the interest rate is floating, then it will affect your EMIs. A fixed interest rate has no effect.
2 Does personal loan show up in CIBIL ™ report
Personal loans can affect your CIBIL ™ score if you do not make timely payments. Your credit score will improve over time if you make timely payments.
3 What is a good CIBIL ™ score?
A CIBIL ™ score between 720 and 750 is suitable for a personal loan.
