Did you recently apply for a personal loan, became extremely happy when it was approved, then noticed that the rate wasn’t what you were hoping? You might have asked yourself (and your loan officer), “Hey! What’s the deal?”
To get to the bottom of the matter, first, let’s unwrap what 'best rates’ really are. We might think it equals the interest costs closest to the advertised rate but that’s only half right.
The Most Likely Reasons
The promoted rates represent the best possible outcome for a specific loan amount to be paid back within a specified timeline. This means that your rates will be different in line with how much you borrow and how quickly or slowly you intend to pay it back.
After that, the bank will also need to asses just how risky it is to lend you the funds you need. In almost all instances, banks will pay attention to factors like credit history, income status, security of loan and employment to reach a conclusion.
With that in mind, let’s take a gander at some of the possible reasons why you did not get the rates you wanted.
1. You’re not a rock star when it comes to credit history
When you promise to pay and then you don’t, it leaves a metaphorical red mark on your financial report card otherwise known as your credit report; a comprehensive record of your transactions with banks and other authorised creditors.
If these payment transgressions are bad - you will not get your loan approved but if they're not great but just 'ok'; you'll get a loan with a higher interest rate.
Sometimes, the higher rates you receive will reflect your status as a risky borrower.
2. You don’t have an FD or investments in the bank
When you have ‘good history’ with your bank in a way that can demonstrate a commendable habit of saving and a knack for careful financial planning, you could be rewarded in the form of lower interest rates.
This is especially valuable for personal loans that allow you to borrow against the FD or investment you have placed with the bank. Often called secured personal loans; loans like these come with a lower interest rate because they are essentially provided with a form of collateral.
3. You’re not on the bank's list of preferred employees
Certain employment types come with special benefits, we’re talking about government employees – those in civil service and employees of government-linked companies. Civil servants can benefit from special lower interest rate schemes designed especially for them.
It is meant to account for the stability of a civil servant's employment and is usually accompanied by specific payment modes, such as automatic salary deduction to minimise late payment (or non-payment) issues.
Beyond those specifically meant for civil servants, some banks do discriminate further depending on the type of industry you are in and how secure or well known your company appears to be. Don't be surprised if they ask you extensive questions about what you do and where you work.
In this situation, it's hard to guess what kind of rate you will receive in each bank but your bank officer will be able to give you a rough idea based on past applicant experience.
4. You applied for a quick-approval loan
Good things come to those who are patient and those who can’t wait, get higher rates. Well, it’s not always the case but many quick-approval loans usually charge the borrower for the benefits of enjoying a value-added service, in this case, receiving funds faster. As such, banks levy higher interests to compensate for providing quick-cash.
So if you can wait, it might be a good idea to opt out of quick-approval loans and look for regular personal loans. Note that, nowadays, with the competitive nature of personal loans, the wait period isn’t necessarily too long either.
5. You didn’t shop around
With most everything, we make comparisons before we purchase. Naturally your personal loan deserves the same care and attention. Check out our comparator for some of the lowest rates in the market.
If you are still unsure, you can talk to the various bank officers personally about how risky they may consider your case based on your income and profession. You'll certainly be better informed.
What Can You Do if You’re Unhappy With the Rates Received?
You do not have to accept the loan if you aren’t satisfied. Instead you can choose to:
1) If you didn't before (or even if you did); check out our personal loan calculator for the best rates available with every bank. Maybe you've missed a bank promotional rate or there is a bank with a better loan offering. The handy calculator also helps show you your monthly repayments based on the amount you borrow, tenure of financing and income. We've already done the legwork for you so why do it again?
2) Apply elsewhere and at the same time also consider changing the specifics of your loan with respect to the tenure and amount borrowed to restructure the overall rate.
3) Consider introducing a guarantor or supply collateral if you have any to improve the rates you currently have with the bank in question.
4) Check with your loan officer for the details of your loan rates and how you can improve them.
Whatever you decide, you’ll be wise to plan your budget carefully. Remember to consider a healthy repayment range that is achievable for your income level as well as your other financial commitments. Best of Luck!