When in a financial dilemma, personal loans are often the easiest and quickest loans to take resort to. Not only is the processing of the loan swift and prompt but you also need not explain in detail how you’re going to use the proceeds of the loan. This definitely sounds great if you’re someone who has been hunting for personal loans to bring back stability to your personal financial life. But hey, there’s always a catch – interest rates! The lenders provide interest rates of 11.99% to 24% on personal loans and this is a flat value which is offered on loans.
So, how would you place your hands on the cheapest personal loan UK? What are the driving factors behind the interest rates on loans? Read on.
The level of income that the borrower makes in a month
Although this might sound strange but the more you earn, the lower will be the rate of interest rate that the lender will charge you. Studies from the industry reveal that in case you have a monthly income of $770 in a month, the bank will probably charge you a rate of 16-20%. It goes without mentioning that if you could show a better income level, you would probably grab a more favorable rate.
The credit score of the borrower
Your credit score also plays a huge role in deciding the interest rates that you have to pay on the unsecured personal loans. Having a credit score of 700 is perhaps the best way of grabbing the most favorable rate on the loan. If you don’t know the significance of your credit score, you should note that the three-digit number is a measure of your financial performance on credit lines. Whenever you made a timely payment, you obtained a positive point. The lender will take into account your FICO credit score before lending a loan.
The relationship the borrower shares with the bank
Majority tend to open one various accounts in one bank and hence this way they become loyal customers of the bank. When there is such loyalty between the borrowers and the bank, this often tends to lower the rate offered on the unsecured personal loans. Being an old customer, you would be an edge over others as your bank wouldn’t prefer losing a customer to some other bank.
The type of loan the borrower takes out
The type of personal loan that the borrower takes out will also have an impact on the rate of the loan. If it’s a secured loan against some collateral, this will be cheaper and in case it’s an unsecured loan, the rate will certainly be higher. The more you can pay down, the lesser will be the rate.
Henceforth, if you’re someone who is all set to borrow a loan and you’re trying your best to lower the rates, consider the above mentioned factors which determine the interest rate of a loan.