If you have been searching for a smaller cash loan, you’ve probably noticed that personal loan interest rates vary based on the lender. However, there are a number of factors that affect someone’s interest rates.
Some of these factors are under an individual’s control. Still, other factors that affect interest rates differ based on the lender. For instance, one loan provider may consider the purpose of someone’s loan when building an interest rate, while others do not view this as relevant information.
The Leading Factor That Impacts Personal Loan Interest Rates
The most important factor in determining your personal loan interest rate is your creditworthiness, which is represented by your credit score. A credit score is a piece of information that financial institutions use to predict how likely you are to pay a loan back on time.
Typically, the lower the credit score an individual has, the higher their interest rates are on their personal loans. Naturally, individuals with higher credit scores can take advantage of lower interest rates.
Still, this varies based on the lender in question.
What Factors Make Up A Person’s FICO Credit Score?
Most of the time, agencies use five main components to build a person’s credit score. That said, the five things that are used to determine an individual’s credit score include the following:
- Repayment history (35% of the score)
- Credit utilization (30% of the score)
- Credit history length (15% of the score)
- Credit mix (10% of the score)
- New credit (10% of the score)
A “good” credit score is between 740 and 850; these individuals are typically called “super-prime borrowers.”
Debt And Income Affect Personal Loan Interest Rates
Another factor that impacts the interest rate an individual receives for their personal loan is their debt-to-income ratio. This ratio is the sum of your debt obligations divided by your gross income.
A couple of facts that are considered towards a person’s debt include mortgage loans and credit card payments (the required minimum balance payments). However, bills like utility payments will not count toward someone’s debt total.
Usually, mortgage lenders prefer that individuals have a debt-to-income ratio at or below 43%. But, when it comes to personal loan providers, the standards vary based on a lot of other things.
Employment Status Impacts Interest Rates
Another factor that will affect a person’s interest rate on their personal loan is their employment status. Most often, lenders prefer an individual requesting a loan to have stable employment and predictable income.
What this tells loan providers is that the individual will have money coming in to make monthly payments on their personal loan. Typically, lenders look at 24 months of employment history (some may go back even further).
Because employment status affects interest rates, loan providers usually favor individuals with more traditional jobs that have predictable weekly hours. Therefore, self-employed borrowers or freelancers of any kind almost always find themselves at a disadvantage when it comes to interest rates, even if their credit score is favorable.
Does Education History Matter?
Sometimes, lenders consider an individual’s education history when determining interest rates. However, this is more uncommon than the other factors previously mentioned.
Education history is usually asked for to determine whether or not the borrower in question is still in school or not. So, if an individual has steady employment and a good credit score but no higher education, they can still get a fair interest rate.
Get Your Next Personal Loan From Cash Link USA
If you are looking for fast cash and live in either Texas, Kansas, Missouri, Tennessee, or Wisconsin, our loans at Cash Link USA are designed with you in mind! Every day our team helps people get out of tight financial situations.