How does your credit score affect your personal loan interest rate? An explainer

If your credit score is high, it is quite easy to be able to get a personal loan offer at a low interest rate. On the contrary, if your credit score is poor, getting an offer itself is a big deal. And if you are lucky enough to procure a loan, the interest rate that the bank gives will be higher than usual.

Here we explain how your credit score tends to affect your personal loan across different levels.

Impact of credit score on interest rate

I. When your credit score is abysmally low (<600): In such a case, it is particularly hard to get a personal loan. And even if you manage to procure it, the interest rate at which the bank offers loan will be high. Typically, one may have to approch a non-banking financial corporation (NBFC) to procure a personal loan.

II. When your credit score is mediocre (600-650): Getting a personal loan when your credit score is above 600 is feasible but the bank may charge a higher rate of interest. For instance, while the bank may give personal loan to regular borrowers at 11 percent interest, it may give the same offer at 12 to 13 percent per annum to someone who has a medium credit score.

III. When it is good (Between 650-720): A good credit score i.e., above 650 can fetch you a personal loan at regular rate of interest. There would be less probability of loan rejection on account of poor creditworthiness.

IV. When it is excellent (Above 720): Someone with an excellent credit score i.e., over 720 is likely to get a good personal loan deal, which means at a concessional interest rate.

Banks usually tend to trust borrowers with prompt repayment of loan without any delay. Therefore, it is important for everyone to make sure that they pay their bills on time and maintain a high credit score.

(Note: Raising a loan comes with its own risks. So, due caution is advised)