wooden blocks of interest rates while a man's index finger is pointing to a red one
wooden blocks of interest rates while a man's index finger is pointing to a red one

How Alternative Credit Scoring Can Influence Factors Affecting Interest Rates

When it comes to loans, you always want to make sure that you’re choosing the best package for your situation. This means comparing details, such as fees, costs, and trade-off points, between several loan packages. But did you know that interest rate factors can also be another detail that you can look into?

Interest rates are a constant in any loan. For many, interest rates factor between several competitive loan and mortgage packages. Learning how several factors influence interest rates debunks common credit score myths and gives you a better understanding of your loan choices.

Before you apply for a loan, check out our guide to loan packages, interest rates, and other considerations in this article:

What to Consider When Comparing Loans and Interest Rates

Before applying for a loan, it’s important to compare several loan options. There are several considerations you make when comparing loans: loan amount, interest rate, charges, fees, tax benefits. Finding the best loan package for your circumstances is essential to ensure your financial wellbeing.

When considering loans, it’s important to remember that these terms may change during the consideration process. This is why knowing what you need in terms of finances is crucial. Understanding how such changes impact a loan package will help you pick the best financial option.

If you’re thinking about which loan to get, below are the basic factors you need to consider:

a male newly hired and male recruiter shaking hands


For both lenders and borrowers, employment is a huge factor when it comes to loans. Any person who has applied for a loan will tell you just how much your employment–or unemployment– factor in during the application process. After all, having a stable income shows that you can pay your dues.

If you’re weighing your options between multiple loans, one of the factors that influence interest rates is also employment. When you look at a loan, consider the employment rate at the time. Interest rates might be lower during times of high unemployment. Depending on the specifics of the package, loan terms might also be more favorable for an employed borrower.

Employment is a vital consideration factor when choosing a loan. Since each package will have its own terms, make sure to check whether these terms fit your employment status. Some loans will suit self-employed borrowers, while others may be more beneficial for employed or even unemployed individuals.

Wage Growth

Wage growth is a sign of a change in the economy. If you’re applying for a loan during a period of wage growth, then it’s important to read the terms and conditions of your packages thoroughly. Wage growth can be quite positive for people in the labor force, especially white-collar workers–but it can also negatively impact blue collar workers in an inflation.

When applying for a loan, consider how long it will take you to pay it off. Be aware of how much your current income and expenses are and how they can increase or decrease in the future. While wage growth isn’t necessarily a negative thing, it can also impact your loans in the long run.

Hand flipping a wood cube of arrow down to up besice a wooden block of interest rate

Point Tradeoffs and Interest Rates

For many borrowers, interest rates are the make or break of any loan package. When comparing multiple loans, individuals will normally prioritize the option with the lowest interest. Low interest rates are usually the most desirable, but they aren’t necessarily the most optimal.

When looking at loan packages, be sure to study the trade-off points versus the interest rates. Lenders will often offer different rates depending on various points. These points shape how you’ll approach payment in the future.

Some of the more common point tradeoffs include:

  • Lower interest rates, higher down payment
  • Higher interest rates, higher closing costs
  • Low down payment, higher interest rates

How Do Interest Rates Affect Your Loan Choice

Whenever you consider loan options, interest rate is among the first things you check. It’s also the factor that usually closes the deal. But why do interest rates have such a heavy impact on your decision?

Interest rates carry such weight because they can affect your finances in the foreseeable future. Loans are meant to be paid over a given amount of time and interest rates determine how much of your finances go to the loan payment. If not properly checked, interest rates can be quite taxing on one’s pockets and quality of life. Understanding the factors that influence interest rates allow you to examine and determine which loan packages are best for you.

Common Interest Rate Factors

When determining interest on a loan, lenders consider several factors based on your application. But having a high interest rate on your loan doesn’t necessarily mean that you have bad credit. From employment status to local economic conditions, interest rates are affected by several factors at any given point.

If you’re wondering what factors are affecting your interest rates, then check out this list below:

hands of a man holding a credit history paper

Credit Score and History

Credit scores affect a lot of your financial prospects, including loan interest rates. Lenders and financial institutions depend on your credit score to predict how fiscally reliable you are. Generally, an individual with a good credit score will have lower interest rates.

If you’re wondering how to check your credit score in the Philippines, then start with your credit history. This refers to the majority of your recorded financial history. Look at your credit card statements, previous loans, and payment history to have a rough idea of your score.

Loan Type

One of the key factors affecting your interest rates is loan type. Lenders and financial institutions offer a variety of loans ranging from property loans to business loans. Depending on the type of loan, your interest rate can be significantly higher.

three stacks of coins in front of small house. A downpayment concept

Down Payment

A huge factor that influences your interest rate is down payment. Most loans require a down payment, so it’s safe to assume that almost all loans consider down payment in the computation of your interest rate. Generally speaking, a higher down payment translates to a lower interest rate–but this might not always be the case.

A loan with at least 20% down payment will have a considerably lower interest rate. On the other hand, a down payment below 20% may incur additional fees and can be longer to fully pay. Of course, some loans will have variations in their rates.

When deciding between down payments, consider both the short- and long- term impact on your finances. A large down payment can put a dent in your pocket, but so can a higher interest rate in the long run. Make sure to analyze your financial situation thoroughly before making a final decision.

Loan Term

Another important factor for your interest rates is the loan term or how long you’ll be paying the package. Short term loans have higher periodic payments, but lower interest rates while long term loans have smaller payments and higher interest rates. Of course, this might not always be the case and will heavily depend on the specific terms in your loan package.

How Alternative Credit Scoring Affect Your Interest Rates and Loan Choices

Since credit scores are major interest rate factors, individuals with little to no credit history might feel anxious about their loan applications. While it’s always a good idea to build your credit as early as possible, you can also rely on other evidence of your financial responsibility. This is where alternative credit scoring comes into play.

Alternative data scoring uses data from various digital platforms that reflect your spending habits. These digital platforms include online shops, telco data, social media usage, bills payment history, and geolocation tracking. The data collected from these platforms become a good foundation for lenders when processing your loan application.

Combined with extensive financial fraud detection and background checks, the following alternative credit data are effective points for your loan application:

Telecommunication Tower during sunset

Telco Data

Telco data refers to data gathered from mobile and telecommunication usage. This includes mobile data use, call durations, call origins and location, porting history, and even SIM data. If you regularly use your mobile for various activities, then it can be a potential baseline for your alternative credit.

Travel Data

Alternative data scoring also keeps track of your travel data, specifically how you pay for it and what you use to pay for it. If you’ve been using services such as Grab or if you’re a frequent airline traveler, then these can be positive points in your alternative credit score.

Bills Payment History

Regular and consistent bills payment show financial responsibility and stability. If you pay your bills on time and in full, then lenders have clear proof that you can be a reliable borrower. Keep track of your utility bills, mobile bills, and other financials to build a stronger case for yourself.

A Miniature Shopping Cart on MacBook Laptop

Ecommerce Data

Your shopping habits say a lot about you–particularly about your financial habits and capabilities. Do you often shop online? Can you pay for the things you buy? Trends in your shopping history tell a story and lenders can use that to assess the potential risks of your application.

Transforming your Interest Rate Factors with Alternative Credit Scoring

Loans are an integral part of the financing process in the Philippines. From buying property to setting up a business, many individuals turn to loans as a way to ease their financial burdens. But loans can be quite complex, especially for individuals who haven’t built a reliable credit score.

With alternative credit scoring, interest rate factors need not be exclusive to privileged individuals anymore. Using reliable data from various digital platforms, lenders can assess potential borrowers accurately and fairly–even if they do not have a longstanding credit history.

FinScore is a financial technology company in the Philippines that offers a powerful credit scoring platform and fraud detection tools based on alternative data, including telco-based data. 

As the pioneer in lending and scoring of the unbanked, we continuously provide fintech services that empower financial institutions, banks, and credit bureaus with flexible platforms to help them make insightful and reliable credit decisions. Contact us today to learn more about our products and solutions for financial institutions.