The ultimate guide to understanding the personal loan interest rates

At some point in life, you will face a financial crunch. At such a time, if you do not have sufficient funds you may need to opt for a loan. Out of all the available loans, the personal loan is the best choice.But while it may be convenient to apply for this loan, certain factors are needed to be taken into consideration, especially if the repayment strategy needs to be planned. Additionally, you must also know how the interest rates on personal loans are being calculated, especially if you use the personal loan calculator. One of the important factors that need to be considered is the interest rate. This guide on interest rates will help assist you:

Individuals who normally are salaried or self-employed have a strong inflow of income. This impacts the repayment factor, thus increasing the chances of the approval on the loan application. In addition to this, factors such as the company where the applicant is working, credit history and relationship with the bank are other influential factors. Based on this, the applicant can use the personal loan calculator and calculate the ideal interest rates which can be further negotiated with the bank.

In order to stay above the competition, banks offer different rates on personal loans. However, the standard interest rate lies in between 12% to 15%. However, this rate depends on what the bank is offering along with the method on interest rate calculation.

Flat rates – through this scheme, the applicant would get a loan on a flat interest rate, wherein one would need to pay back much more than normal. The interest rate would be calculated on the initial principal amount throughout the tenure of the loan. The outstanding loan amount is never reduced in this way. Thus, one would end up repaying much more than usual as compared to different kinds of calculated interest rates.Reduced balance interest rate – This is the best calculated interest to opt for. Comparatively cheaper than flat rates, the interest on the loan amount keeps reducing on the basis of the calculated principal amount which reduces in each repayment.

Floating rate – The interest for this scheme depends on the market conditions. Although it is perceived as a high risk repayment method, an applicant can take a gamble. Thus, the applicant can even get a beneficial interest rate if the market conditions prove to be favourable.Apart from this, there are plenty of other reasons which influence the interest rates. This depends on the bank the applicant approaches along with the relationship the bank shares with. However to get a good understanding of the interest rates, one can use the personal loan calculator and make the most of it.

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