And why is there such a big variation in interest rates? Your Cibil score or credit history is one of the biggest factors that determine the conditions of your loan. I intend to take a personal loan for my sister’s wedding. Different programs and banks show me completely different interest rates. Some advertise 10.5%, while others offer 14% or even more. Why is there such a big difference? How do I know which one is right for me? – Priya Mehta, Ahmedabad big question, Priya, and one that emphasizes a general confusion. On the surface, a personal loan looks like a simple product. But the reality is that every interest rate you see is linked to several factors. Let’s break it down so you can make a confident decision. 1. Creditworthiness: The basis for praising your Cibil score or credit history is one of the greatest determinants. If your score is higher than 750, you are likely to be offered lower rates because borrowers consider you less risky. On the other hand, scores below 650 usually attract higher rates. 2.. Income and work stability: How lenders judge, a professional professional with a stable monthly income from a well -known company often dares better conditions than someone with irregular or unpredictable earnings. For independent individuals, borrowers can ask for additional documents such as GST returns or Business Bank States. 3. Type and target holding desks, NBFCs and Fintech firms work everyone else. Banks are usually conservative in lending, but usually offer the lowest interest rates for customers with strong credit profiles. NBFCS and FinTech players, on the other hand, can charge slightly higher rates, but provide greater suitability and faster processing. It is also not better or worse – it is about balancing costs with ease and accessibility. 4. Hidden charges Most people compare only the interest rate on the head and ignore: processing fees (typically 1-3% of the loan amount) Documentation cost prepayment fines carry these and a loan that initially looks cheap is expensive. 5. Loan period: Short and long play shorter term has higher installments, but lower total interest payments. Longer term reduces your monthly load, but increases the total interest you pay. The ‘right’ term of office depends on your ability to repay, not just the advertised rate. So how do you decide? At Fintifi, we recommend comparing you loans, not only with their interest rate, but through the effective cost of loans: EMI + hidden costs + impact on the term of office. Here is a rapid rule: If the difference in interest rate is 2% or more and your loan period is at least two years, it is usually worth switching or choosing to choose the lower rate. If the difference is less than 1%, you should focus on choosing a flexible, reliable lender, a good service rather than chasing a slightly lower rate. Remember, the cheapest loan is not always the smartest. The right loan is one that balances the affordability, flexibility and peace of mind. Aryan Makwana is co-founder of FinTifi.
How do I choose the right personal loan?
