FACTORS THAT DETERMINE PERSONAL LOAN
Unsecured loans enable you to borrow without having to use
any type of collateral.
Interest rates associated with these types of loans are
determined by several key elements. Here are a few factors that
help determine the interest rates you receive.
Market Interest Rate
One of the most influential aspects for determining loan
interest rates are the market interest rates. The market rates
are determined by the Federal Reserve. The reserve will lend
funds to banks and will often alter their lending rate,
contingent on the economy. When the Federal Reserve increases
their rates, individual banks must also raise their rates so
that they can continue to earn revenue. It is important to
analyze the market interest rates prior to
applying for personal loans. Timing is everything...
Specific Bank Policies
Another variable that influences interest rates are the
individual bank policies. Ever bank is going to have their own
policy in place that will impact interest rates. When you
shop for your loan, every lender/bank you communicate with
are going to have different interest rates than one another.
The most impacting variable of interest rates is your credit
score. Your credit worthiness is determined by your credit
credit score is computed based on your past credit history.
Every lender is going to analyze your credit score and history
so that they can conclude whether or not to approve your loan
request and what type of interest rates to grant. If you
encompass a low credit score (530 or below), you are viewed as
high risk by lenders and therefore are going to receive
unfavorable interest rates. If you have a strong credit score
and rating, you can expect lower interest rates for your
Not important as credit scores but still a critical variable,
the amount of money you earn is also going to determine the
interest rates you receive. Lenders are going to want to see
that you earn enough to make the payments for your loan. The
greater your income, the lower risk you are and less likely to
default on your loan and therefore, the lower the interest rate
you will receive.
Your debt scenario is also an important aspect of interest
rates. Every lender is going to analyze the amount of debt you
possess and evaluate it with your income level. This formula
will allow them to create your
debt-to-income. The greater your debt-to-income is, the more
interest you are going to pay. In addition, the more debt you
encompass, the less amount of money you are going to be able to