5 Factors that Determine Your Unsecured Personal Loan Interest Rate

Getting an unsecured personal loan can provide you with cash for any number of things. The rates for these loans, like any other loan, are influenced by a number of different factors. Here are a few factors that help determine what rate you will get for an unsecured personal loan.

1. Market Interest Rate

One of the most important factors in determining your interest rate are the rates in the general market. Market rates are influenced by the Federal Reserve. The reserve lends money to banks and will frequent change their borrowing rate, depending on the economy. When the Federal Reserve raises their rates, individual banks must increase their rates as well in order to be profitable. Proper timing is an important part of your rate.

2. Individual Bank Policies

Another factor that plays into the interest rate that you pay is the policies of the bank that you are working with. Each bank has their own policies in place that can affect interest rates. When you shop around between different lenders for an unsecured personal loan, you will immediately notice that each bank comes with a different rate. Some banks may not even be willing to a preview where others are glad to work with you. Therefore, if you want to find the best rate, you are going to have to work with multiple lenders. 

3. Credit Score

The biggest factor that you can control, to a degree, is your credit score. Your score plays an important role because it is a compilation of your credit history, and therefore, credit worthiness. Lenders use your score to evaluate and determine loan eligibility and rates. If you have a lower credit score, you represent a bigger risk to the lender. When a lender takes on more risk, they are going to ask for more reward in return. This means that they are going to charge a higher interest if your credit score is low. Those with good credit scores typically enjoy lower interest rates on unsecured personal loans.

4. Income

The amount of income that you have will also play a role in determining your interest rate for an unsecured personal loan. Lenders like to see a sufficient amount of income to cover the loan payments. If you have a higher income, you represent a lower risk of default. Therefore, they will lower your interest rate if you can prove that you have a large income. Income is not as important as credit, however, so paying your debts is critical to secure new loans and money.

5. Debt

Another important part of your interest rate is your debt situation. Lenders will look at all of the debt that you have and compare it to your level of income. They will use this information to create a debt to income ratio. The higher your debt ratio is, the more interest you should expect to pay for a loan. The more debt you have, the smaller the loan you will qualify for will be.

Need Cash Now? Get a Cash Advance