Why Am I Being Charged Higher Personal Loan Interest Rates Than Others?
When you apply for personal loans, credit cards or any other form of credit, the interest rates vary depending on the bank or financial organization. They also change depending on your credit score and other personal factors, which define the risk a lender is taking in giving you a loan.
My Personal Loan Interest Was Increased. Is That Normal?
Other than lenders quoting different rates, you may also notice the same lender quoting higher interest rates for the same loan at different times. And with revolving credit, such as a credit card or personal line of credit, rates may be variable even on existing products.
If you are paying a higher rate of interest on personal loans than friends and family, or your interest rate has increased recently, here are some of the possible reasons:
Drop in Your CIBIL Score – Your credit score and credit history will not only affect your ability to get a loan, but also how much interest you need to pay on it. If your credit score or CIBIL score has dropped recently, lenders may quote you higher interest because they see you as a high-risk consumer.
Unstable Career/Income – Interest rates may increase in case you have been switching jobs or changing careers too often, or are unable to provide proof that you work in a reputable organization with a steady income. This is because lenders will have no way to be sure you can pay back the loan.
Poor Repayment History – Missing out on EMI payments or making too many late payments for existing loan products shows an inability to manage credit properly. Not only will lenders be more likely to charge you higher interest on credit extended in the future, but also heavy penalties and late fees.
Moving Home Too Often – Hopping from residents to residence can also affect your interest rates, signaling instability the same way as job-hopping does. Switching cities or moving home within the same city while you have an existing loan can make lenders wary of giving you another at low rates.
Multiple Unsecured Loans – Applying for multiple loans or credit cards at the same time is one way that your credit score may go down, and consequently, interest rates go up. The same thing applies when you have too many existing loans, especially if those not secured with a deposit or collateral.
Lack of Proper Research – If you want competitive interest rates, you need to put in the time and effort to find the right loan product. In addition to comparing different loans, you also need to be aware of the base rate charged by banks, as well as the rules and regulations that apply to the lending market.