Top 6 Factors That Determine Your Personal Loan Interest Rate

  | Published: 07 November 2019 | Last Updated On: 05 February 2021

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Easy and quick approval, collateral-free, and low risk are some of the main reasons why a personal loan is the most preferable option for having additional funds. It can be availed for meeting various monetary needs.

However, personal loan interest rate will always remain a vital factor when opting for a loan. Yes, you read it right. When it comes to PL, different banks or financial institutions offer you a loan at a different rate of interest. Once you start comparing personal finance offered by the leading lenders, you will find that the interest rate actually depends on a few criteria. Moreover, different lenders set different criteria in terms of offering consumer loan interest rate.

Below are 6 key factors that affect the rate of interest for a consumer loan. If you planning to avail PL then it is very important for you to understand what factors will influence your personal loan interest rate.

Credit Score

Before offering you consumer loan, banks or lenders consider your credit score in order to check your creditworthiness. 

A credit score basically works a validation about how consistently you have been with your credit card or loan payments. For each payment made against your credit card or finance, you add points to your credit score. However, missing even a single payment can affect your credit score negatively.

And, if you have a bad credit score, many lenders do not accept your loan application, and if they accept, you will be offered PL on a high rate of interest. Hence, the better your credit rating, the higher are the chances of getting a low interest rate on personal finance.


Your income significantly affects the interest rate for a personal loan in UAE. The borrowers who earn a high income are always a safe bet for the lenders. As income increases, affordability increases. Thus, the chances of repaying the PL also increase.

The more income you earn, the higher are the chances for you to avail consumer finance at a low rate of interest as the bank can easily rely on your repayment ability. To sanction you PL, it is very important for the lender to trust you, and this is only possible, if your monthly income is above the risk limit.

Employer Reputation

Another major aspect that leaves a great impact on your consumer loan interest rate is the reputation of an employer you are currently working with. Reason being, applicants who are working with a well-renowned organization are considered more responsible and stable towards repaying their EMIs on time. Thus, lenders are willing to offer such applicants a personal loan at an attractive and competitive rate of interest. However, if your company is a start-up and is not in the bank’s approved list of the employer, there are high chances that you might get PL at a high rate of interest.

Employment Status

The nature of your employment also has a great impact on your personal loan interest rate. A salaried individual might get a different interest rate from an individual who is self-employed. In addition to this, borrowers at their retirement age might have to pay a high rate of interest on PL.

Relationship with the Lender

Another important factor that influences your PL interest rate is the prior relationship with the bank or lender. If you have been a loyal customer with a good repayment history, the lender might offer you extra perk in terms of offering you personal finance at an attractive rate of interest.

Also, if you already having a salary, savings, or current account with a respective bank then the lender will more likely to offer you PL at a low rate of interest as well as processing fees in order to retain their customer. Henceforth, maintain a healthy relationship with the bank to avail a low personal loan interest rate.

Applicant’s Negotiation Skills

If you’re having a bank account with a particular bank for quite a long time, it is obvious that you are an esteemed customer of the bank and you might have maintained a good relationship. In such a case, negotiating with the bank on the interest rate will surely help you to get the best deal. Based on your negotiation skills, you can ask the respective bank for special perks and offers, and can enjoy the attractive interest rate on consumer finance.

To Conclude

Now you must be clear about all the major factors that influence the personal loan interest rate. Thus when you consider applying for PL, keep the aforementioned points in your mind before applying for it. Also remember, different lenders offer consumer finance at a different rate of interest, so, make sure you compare them before finalizing the deal to opt for the best one.