Personal loans are just a breeze for anyone going through a tough financial crisis or has any kind of sudden necessity for a quick, collateral-free loan. Yes, that’s right, as this type of loan’s main objective is to satisfy the borrower’s sudden need for finances, that’s why they don’t require any asset or other product And it also offers an applicant 5 years of the maximum time to complete the repayment. But before signing up for any loan scheme the applicant should always be aware of the interest on personal loan and its type. Moving forward let’s examine the interest on a loan with clarity.
Personal loan interest rates and types
Personal loans are affordable at low rates of interest, these interest rates are determined based on the capital amount, repayment period, creditworthiness, and other factors. Hero fincorp offers a maximum of only 25% per annum interest rate. These rates are mainly of two types and those are as follows;
Flat interest rate
Interest rates are charged based on the whole amount availed, each year. Until the repayment completely ends. Also, this is the most used interest rate in the commercial loan sector.
To calculate one’s EMI using this system, the first one needs to find out the total interest payable as follows;
Total interest payable = (principal x rate of interest X loan tenure) / 100.
Now after finding out your total interest payable, you can easily calculate your monthly payments by using the formula given below.
EMI = (Principal amount availed l＋Total Interest Payable) / Total Loan Tenure in Months.
Reducing balance rate
There’s also another method for calculating due interest on availed capital, though this is not as popular as the previous one this puts some extra money back in the borrower’s pocket. To understand the interest type better, we’ve put down the formula below to calculate each month’s loan installment including interest.
E= [P x R x (1+R)^N] / [(1+R)^ (N-1)]
Where E stands for EMI
P stands for the initial loan amount availed
And R is the rate of interest charged every year
And N is loan tenure in months.
Factors influencing personal loan interest rates
Interest on personal loan is measured using a different set of factors. And in the cases of other financial institutes, have their techniques. Hero fincorp mainly focuses on four different factors when deciding the personal loan interest rates of a specific borrower, those are as follows;
Income
The first thing that gets viewed by the lending team is the borrower’s monthly income, if the borrower manages to show a high monthly income, then he is marked as a low-risk debtor and he may get a interest on personal loan his procured amount of loan.
Age
The next thing that the lending team reviews are the borrower’s age, yes! The age of an applicant can determine their working power. A young person is always deemed to have more efficient capabilities to work compared to a senior-aged person. T
Occupational status
A personal loan applied by a self-employed person may include some sort of risk related to the repayment process. As a self-employed person’s income is not as stable as a salaried employee. That’s why salaried employees may get a low-interest rate.
Employer status
Working for a government or any other reputed, the trusted organization increases your chances of procuring a low-interest rate on a personal loan. So employer status matters in determining the rate of interest.
Conclusion
In conclusion, consider that your portfolio matches the factors given above to minimize your loan interest. One can also improve their credit history by paying outstanding debt or negotiating the initial interest on personal loan offered by the lending institution to lower their overall interest.
