Availing a personal loan is one of the best options out there to fund your personal or emergency expenses. Whether it’s buying a car, a vacation or funding your children’s higher education, a personal loan is suitable for a diverse range of needs. However, the personal loans interest rates are fluctuating. Every bank or lender has its own set of loan interest rates. If you’re planning on taking a personal loan soon, then the following are the factors that can affect your interest rate:

Credit score

Your credit score is a crucial factor in getting your personal loan approved and determining your loan interest rate. Every lender checks the applicants CIBIL score while assessing their profile. If the CIBIL score is low, then the lender may not even consider your profile for a personal loan. In simple terms, the higher the CIBIL (credit) score is, the lower the interest rate. The reason behind this relationship between your credit score and your interest rate is that it clears out your creditworthiness to the lender. Since personal loans are unsecured loans, creditworthiness is important for banks to assess the involved risks. The CIBIL score ranges from 0 to 900. A CIBIL score above 750 is considered a good credit score and can fetch you lower personal loan interest rates. 


Since a personal loan is a type of unsecured loan, the borrower’s repayment capacity plays a vital role in determining the interest rate. The income of the borrower assesses the repayment capability. The higher the income of an individual, the higher is their repayment capabilities. Borrowers with higher income are safer bets for the lenders. 

Relationship with the lender

If you possess a pre-existing relationship with the lender, it can help you benefit in terms of interest rates. Lenders are more likely to be lenient towards their already existing customers. Your long existing relationship with the lender showcases reliability and builds trust. Banks generally offer special interest rates and processing fees. They often offer personal loans at a lower interest rate if you have a convenient credit history or run a savings account with them. However, it is not always that every customer of a bank will get a lower interest rate. 

Employment status and type

A stable income source plays in your favour when you apply for a personal loan. Salaried employees, business owners, and self-employed professionals can easily avail of personal loans as per requirements. Banks may offer different interest rates for salaried employees and self-employed professionals. If you have a stable income and job security, you’re more likely to get a personal loan. 

Employer’s Status

Your employer is one of the factors considered by the lender to check your creditworthiness. The organisation you work for can affect the interest rate you have to pay on your personal loans. Banks often categorise companies as those in the top 1000 companies list, multinational companies, smaller companies and startups with 100 employees. If the company you work for lies in a categorically higher position, then you get better deals on personal loans and lower interest rates to pay. Say you’re working for a startup, then you may have to pay a higher interest rate. This happens because the reputation of your company determines your reliability. The better the organisation you work for, the more responsible you’re considered towards paying back the loan.

Debt-to-income ratio 

While it is true that a higher income can fetch you lower personal loan interest rates, it is not necessarily always true. Instead of looking at your total income, lenders prefer to look at your disposable income. In general terms, disposable income means the income you can afford to spend. In most situations, a personal loan may not be the only financial liability people have. If a part of your income already goes towards repaying pre-existing debts, it impacts your loan repayment capabilities. For this purpose, the debt-to-income ratio of the borrower is calculated. A higher debt-to-income ratio means more debt burden on the borrower and vice-versa. Hence, a lower debt-to-income ratio may help you fetch a lower interest rate. 

Negotiation Skills

This factor does not substantially affect your personal loan interest rate, but it can sometimes help you get a lower interest rate. As mentioned above, personal loan interest rates are very fluctuating and dependent on multiple factors. If you have an existing relationship with the lender, then you can negotiate your interest rate.

These are the main factors that can affect personal loan interest rates. Banks mostly consider an individual applicant’s creditworthiness and employment status before approving a loan amount with a certain interest rate. Other factors, if considered thoroughly by the applicant, will most likely fetch appropriate interest rates, reducing the repayment burden.