Everybody knows about personal loans nowadays, they can be used for various purposes: unexpected car repairs, bedroom remodeling, a new laptop, or whatsoever. Every loan provider advertises its services everywhere. In most cases a range of interest rates is mentioned, making the potential customers interested what it is and how the interest rate is defined by the personal online loan provider.
Type of a Loan
Most personal loans are unsecured, meaning the applicant does not need to provide any collateral, which may be repossessed if the obligation is not paid off. Being unsecured such loans presuppose a higher interest rate.
The lender sees the client’s financial situation indicates that making payments may be problematic, he offers higher interest rate or denies the application.
The credit rating of a potential borrower along with his payment history shows a lender the likelihood of the successful loan repayment. The borrower who has failed to make payments on time will be offered a higher interest rate than the one who paid his bills regularly.
This factor shows the extent to which the current credit is used by the applicant at present. In case the potential borrower uses about 95% of his available credit, he will be proposed a high interest rate if not denied at all.
The borrower’s credit history characterizes his ability to handle his credit obligations. If the credit cards balances are in good condition for a number of years, the mortgage and car loan payments are regular and the letter possibly covered, it means the applicant manages to handle his credit accounts and keeps his finances in order. The client with no mortgage and without a credit card makes it difficult to understand how he is able to deal with the loan, that’s why he will be offered a higher interest rate.
Risk is the common factor for all the above mentioned aspects. All of them are the indicators for the lender of the likelihood that the borrowed money will be repaid. The more the risk, the higher the offered interest rate.The explanation is simple, in case 2 of the 10 borrowers fail to pay off their obligations, the interest rates of the remaining loans will be enough to cover the default ones and still make a profit for the lender.
While shopping for a loan the consumers seek for financial flexibility or achieving a certain financial goal. So, in case an applicant may be considered a risky one, he still maybe able to get an unsecured personal loan with a higher interest rate.
Don’t forget to pay attention to 5 important aspects influencing the personal loans interest rates to get the best deal!