Everybody loves a cheaper loan. But have you ever wondered what determines the rate of interest on personal loans? There are no fixed interest rates for unsecured loans. The rates differ according to the borrower’s ability to repay and his credit profile.

Risk profiling is the most important aspect of peer-to-peer (P2P) lending. A borrower with low risk will get loans at a lower interest rate while another with higher risk will have to pay a higher interest rate for his loan.

Borrowers on our platform are given a score out of 10, which determines their risk profile. A score of 0 to 5 points is considered high risk while a borrower with more than 6 points will get a lower interest rate.

Interest rates determine the risk factor associated with lending to a person. Past repayment behavior, diligence in making utility payments, and past loans may also determine a borrower’s intention and ability to repay.

Parameters such as income, sources of income, dependents, and earning members show financial ability. Some fintech companies are also considering incorporating shopping details to determine financial behavior and intentions.

Fintechs rely heavily on data analytics. As such, financial behavior and discipline would be more important than the ability to repay in determining the interest rate.

Interest rates are set as per the borrower profile. A profile is determined by the borrower’s financial stability reflected by many factors like his or her credit history, job profile, and place of work.

On the basis of the evaluation, our platform makes the offer. If a borrower accepts, the he or she is listed on the platform.

The underwriting team does the credit evaluation before the platform makes the final offer to the borrower. For example, someone looking for a business loan worth Ksh. 30,000 may be offered a Ksh. 15,000 loan after his or her documents are verified by the underwriting team.