ep2. What are the Interest Rates on Personal Loans?

Welcome to the finance on fire podcast written article, my name is Cameron Parker and I am your host for this and each episode of the podcasts written edition.

The Finance on fire on podcast is where we answer your personal finance questions in under a minute.

Today’s question is:

What are the Interest Rates on a Personal Loan?

Most lenders do what they call risk rating. This means that when you put an application up to a lender, their automated system will take a snapshot of pieces of information and determine whether you are a high risk, medium risk or low risk to them getting their money back.

The information they look at is your credit file, whether or not you’re renting, boarding or own a home and they will look at your history ie: Have you been at your address for a long period of time, how many applications have you made with other lenders, your credit file score.

Basically, what they are doing is profiling you as an individual

As an example, if you are a homeowner with little to no credit inquiries, steady in your job with an excellent credit score you will likely be eligible for a low rate type personal loan. That means your low risk to them getting their money back ie; you have provided them comfort.

If you’re boarding, no real lending history, short-term job and say … casually employed, you may be classed as a higher risk. Therefore, you will more than likely get a worse interest rate.

Now even if you get a worse rate there is ways to make it better in the long run. One of those is a great repayment history with that lender. After a period (say 12 months) of ensuring you never miss a payment etc then you may be able to renegotiate with them to get a better deal. You have essentially proven yourself to them. Now not all lenders do this but keep it in mind as a possible option.

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