Top 6 Factors Influencing Personal Loan Interest Rates in UAE

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  | Published: 13 October 2021

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Getting a personal loan is one of the most valuable methods of arranging funds for different kinds of financial needs, such as tuition fees, medical emergencies, weddings, holidays, project renovations, and much more. They serve multipurpose benefits, which is why people consider taking the same to pay for their emergency expenses.

It may seem easy to get a personal loan, but it is not if you do not have all the elements in place. A few factors including your income, credit score, repayment history, etc. affect your personal loan interest rates and you must take them into account before applying for a personal loan. 

Let us go ahead and learn about these factors in detail.

Major Factors Affecting Personal Loan Interest Rates

Here is the list of factors that can affect your personal loan interest rates.

Income

Your income is one of the critical elements that affect your personal loan interest rate. It is understood that people with higher incomes have a higher capacity of repaying a loan. It is a common practice that lenders check the applicant’s monthly income before approving their loan application. People with higher income also tend to get lower interest rates on personal loans. 

Employer’s Reputation

Your employer’s reputation plays a critical role and stands as one of the major factors affecting personal loan interest rates. Even the lenders offering the best rates for personal loans first check the employer’s reputation before they proceed with your application. And if they find your employer registered and financially stable, then only they further consider your application. The reason behind this is the belief that the borrowers employed by reputed firms are responsible and financially solvent when it comes to making timely payments.

Also Read Difference Between Personal Loan and Student Loan in UAE

Credit Score

Personal loan lenders in the UAE check your credit score before providing a loan. Your credit score is a combination of your credit utilisation ratio, payment history, age of the credit, recent sources of credits, etc. 

Credit score becomes one of the most important factors when it comes to approving a personal loan application as it shows your overall financial health in terms of existing debts, income, borrowing behaviour and other things. It shows details like the way you manage your debts and repayment schedule, whether you make late or timely payments, etc. Your existing personal loans do not affect your credit score if you pay your EMIs on time

A good credit score enables borrowers to amplify the level of trust and helps them get even lower personal loan interest rates. A credit score of around 750 is considered to be a good credit score.

Loan Repayment History

Along with the credit score, the lenders check your loan repayment history if you have active loans. If the lender finds that you have been financially disciplined and are paying your loan instalments on time, they may consider approving your loan and offer their best interest rates on personal loans. On the other hand, the applicants who have defaulted their loan EMIs may not get their personal loan application approved.

Debt-to-Income Ratio

Personal loan interest rates get affected by your debt-to-income ratio. Suppose you have a high monthly income but a major part of that income is being used in debt repayments. In this case, your existing debts will affect your personal loan interest rate. You can easily calculate your debt-to-income ratio by dividing all your debts by your total income. A higher debt-to-income ratio shows that the borrower has a lot of debts to be paid. In such cases, the personal loan lender may charge a higher personal loan interest rate.

Relationship with the Bank

Personal loan interest rates are usually lower for the customers who maintain better relationships with their bank. If you have an active savings, current or fixed deposit account with the bank, you may get the benefit of the trust. Most banks offer viable deals with lower personal loan interest rates to their existing customers who have been loyal to them throughout the journey.

Conclusion

Now that you know almost all the factors that can affect your personal loan interest rates, ensure that they all work in your favour. You can also use online personal loan interest calculators to evaluate your personal loan interest rate depending upon your monthly income, active loans, credit history and more. 

You can also visit our website and go to the personal loan section to explore your options or call our helpline number if you need any assistance with the same.