FACTORS THAT DETERMINE PERSONAL LOAN INTEREST RATES

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.

Credit Scores
The most impacting variable of interest rates is your credit score. Your credit worthiness is determined by your credit score. Your 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 financing.

Income
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.

Debt
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 qualify for.