Today’s conducive financing structure of the banking industry has enabled the availability of several easy and affordable loan options. The increasing financing requirements, whether as a part of lifestyle upgradation or to fill any monetary gaps, have led people to look for suitable borrowing options. Among the various financing options available, instant personal loans have emerged as a top choice among all borrowers. The ease of availability, less documentation, instant disbursal, no collateral, no restriction to end users, and many such perks have contributed to the popularity of personal loans.
Unlike any unsecured borrowing option, a personal loan is very flexible. It has zero restrictions on end users, and you can also choose the tenure of your loan at your convenience. Today, these loans come with attractive interest rates, making them more affordable to borrowers of all earning sections. However, before opting for a personal loan, you must know all aspects of this loan in and out.
Read on to learn everything about Indian lenders and the personal loan market.
What are the Instant Personal Loan Interest Rates in India?
Identifying a single rate for an instant money loan would not be possible or even correct, as the final levy on these loans can vary remarkably depending on the lender and the borrower. In this scenario, one must know that the rates reflect the overall risk the lender takes when providing financing to the borrower. The interest accrued also serves as the time value for the money the financial institution lends for any given period. Thus, if the tenure for a loan is long, the chances of a high-interest rate levy increase and vice versa.
As for the associated risks, these risks can either be market-induced or be based on the borrower’s financial profile. Another aspect that leads to the final levy of the loan is the monetary policy and the internal policy in place as determined by the RBI and the financial institution. To better understand the final interest rate levy on your instant money loan, the critical factors that can impact these levies are explained below.
Important Factors That Impact the Levy of Personal Loan Interest Rates in India
Base rate system applicable
In India, the lending-borrowing structure of instant personal loans works on the mechanism of the base rate system being followed. Currently, per the RBI’s monetary policy, the RLLR or Repo Rate Linked Lending Rate system is following in the consumer lending sector. It thus makes the repo rate the direct base rate per which the financial institution would determine the final lending interest rate. To this rate, the lender adds a given spread to arrive at the final rate. As the repo rate is currently on the rise, it has impacted the personal loan rates accordingly.
Lender’s decision regarding rate spread
The spread that a lender adds to the base rate comprises the cost of lending in part, the borrower-based risk value, and the percentage of profit that they include in these rates. It is always this spread that makes the difference to the final levy. When comparing lenders for the lowest rates, know that the space is causing the difference. With the right eligibility for the loan, you can always negotiate for affordability.
Borrower’s choice of fixed vs. floating rate levy system
The choice between fixed and floating rate systems that the borrower makes also impacts the final levy on their instant personal loan. Usually, the floating rates are set a notch lower than the fixed rates. But they are also subject to market volatility and bear the chance of both risk and reward for the borrower.
Apart from these, several factors related to the borrower’s profile also impact the final interest rate levy on the personal loan. Some of these include his/he credit score, monthly income, existing fixed liability, repayment capacity, and credit habits. Especially for personal loans, the individual’s credit score can bear significant weightage in determining their creditworthiness and thus helps finalize the rates accordingly. The ideal score for availing of a personal loan stands at 700.
While the lender-based factors remain intact, a borrower can always work on their financial profile for better negotiation leverage regarding their instant personal loan interest rates. If you have already availed of the advance, you can seek to reduce your interest rate levy by opting for a balance transfer facility with a new lender.