A personal loan, like other retail loans, is available for individuals who have a steady income and need instant capital to finance their needs. Financial institutions in India offer personal loans and charge a specific interest rate on the principal amount when the equated monthly installment (EMI) begins.
Since the continued impact of retail inflation prices, the Reserve Bank of India (RBI) has paused rate hikes while most banks have kept the rate in personal loans unchanged.
Forbes Advisor India has compiled a list of interest rates on new personal loans provided to salaried and self-employed individuals by major lending institutions to help you choose the best deal.
Featured Partners
1
Aditya Birla Personal Loan
Loan tenure
1 to 7 years
Processing Fee starting
2% + GST
Features
Minimum Documentation, Easy Online Application and Low Interest Rates
Table of Contents
- Personal Loan Interest Rates of Public Sector Banks
- Personal Loan Interest Rates of Private Sector Banks
- How do Personal Loan Interest Rates Work?
- Factors that Affect Personal Loan Interest Rates
- How to Calculate Personal Loan Rate of Interest?
- How To Compare Personal Loan Interest Rate?
- Frequently Asked Questions (FAQs)
Personal Loan Interest Rates of Public Sector Banks
Personal Loan Interest Rates of Private Sector Banks
How do Personal Loan Interest Rates Work?
The best way to understand interest rates on personal loans would be to understand what personal loans are.
Personal loans are closed-ended credit with fixed monthly payments over a period predetermined by the financial institution. The period can be three, four, or five years.
The financial institution will now evaluate the interest rate based on the principal amount you borrowed, which the lender expressed as a percentage. The rate applied to your loan will include any fees and other costs and is also known as the nominal annual percentage rate (APR).
Factors that Affect Personal Loan Interest Rates
Employment History and Employer Credibility
Many lenders will check your employment history, job stability, residential stability, etc. All of this, along with your repayment capabilities and fixed obligation to income ratio (FOIR), will determine the interest rates the lender will decide for you. It may be optional, but if you are a government employee, you may stand a better chance of getting a lower interest rate than someone not working with the government.
You may or may not work in a government job, but that does not always have to be a deterrent. Even if you are working in the private sector, the lender could look up your employer. Multinational reputed companies in various sectors with a good reputation and a history of providing stable career options and good salaries can be a factor in how much interest rates you are charged.
Comparing Interest Rates and Offers
Many aggregator platforms are available today to help you make an informed decision. Once you know your eligibility and requirements, you may visit a financial website comparing lenders offering personal loans.
Do not underestimate a good relationship. Take their advice if you already have a long-standing relationship with your bank or a non-banking financial company (NBFC). They can customize a plan that is suited to your requirements.
Good Credit Score and Repayment History
Quite a crucial factor. A good credit score would mean a score of 750 and above. This would give you a higher chance of getting a better interest rate. You should be able to maintain a good credit score if you have avoided direct loans and credit card applications.
Making timely payments for any loans you may have also bodes well for your credit rating, which affects the interest rate determined for you. Timely payment of your EMIs, if you have any, or paying your credit card bills on time are factors that the lending organization notes and make you a respectable and safe borrower.
Check Interest Calculation Method
Try and understand the finer nuances of how your interest is calculated. Different lenders may give you different interest rates, and while some may look less at the outset, you may end up paying a higher interest at the end of the tenure because of how they are calculated.
Check if your loan is a fixed or variable-interest loan.
As the heading suggests, fixed-rate loans have a fixed interest rate that does not change over time. The monthly payment and interest rate will remain the same. Variable-rate loans usually start low compared to fixed-rate loans, which may give the impression that they are better than fixed-rate loans.
But over time, the interest rate on a variable-interest loan may vary, throwing your budget awry. Hence, fixed-rate loans are always a better idea, as you know that no matter the market situation, your interest rates will not increase.
Secured or unsecured personal Loan
The most significant difference between secured and unsecured loans is that in the case of a secured loan, you take out the personal loan based on an asset or collateral, such as property or a vehicle. Secured loans are better because they are easier to get approved for, and your credit score is not a key factor.
Secondly, the financial institution can take away your collateral if you fail to repay a secured loan. The rates are lower than those of unsecured personal loans since the lender is less risky with a secured loan.
If you were to opt for unsecured personal loans, your credit score must hit the mark to qualify. Besides, if you cannot repay the unsecured loan, the lender can sue you to recover its lost funds.
Repayment Timeline
Interest rates are higher when borrowed over a more extended period. That is because the lender is at a higher risk. Hence, personal loans taken for a shorter period are better and have lower interest rates because of the lower risks to the lender.
Hence, it would always be prudent to compare interest rates from multiple providers. As you can see, the factors that determine a lower rate of interest are numerous: the time, whether they are secured or unsecured, whether your loan scheme is fixed or variable, whether you have a good credit score and good repayment history, whether you have a stable income, etc.
How to Calculate Personal Loan Rate of Interest?
The total amount you’ll pay as EMI can be calculated after knowing the lender’s interest rate, term, and amount. Let’s understand this with an example:
Suppose you need a personal loan of INR 50,000, with 10% as an interest rate and a term repayment period of 12 months. In that case, the Forbes Advisor personal loan calculator estimates that your EMI would be INR 4,396, and you’d pay close to INR 2,750 in interest over the principal amount.
How To Compare Personal Loan Interest Rate?
The interest rates lending institutions posted online only give an idea of what they offer, not an exact rate. Banks take a nominal GST charge and fees for processing, servicing, etc. Be sure to confirm the rate applied to your loan in addition to any fees and other costs, which is also known as the nominal annual percentage rate or APR, with your lender before applying.
Even after submitting an application and documents, financial institutions still require a KYC check on the borrower’s credit to qualify for a personal loan.
Here are the eligibility criteria and documents needed to obtain a personal loan from banks.
Eligibility
- Minimum age is 21 to 58 years
- Working for min one to three years
- Borrower’s income should be min INR 10,000 to INR 15,000 per month
Documents
- Aadhar number connected with mobile number
- Valid PAN number
- Proof of identification
- Proof of residence
- Income tax return
- Bank account statement for the last six months
- Latest salary slip
- Some banks also require a guarantor
Helpful Resources
- Personal Loans For Self-Employed
- Best Personal Loans of 2024
- How To Choose The Right Personal Loan In 2024
- Best Marriage Loan For 2024
Featured Partners
1
Aditya Birla Personal Loan
Loan tenure
1 to 7 years
Processing Fee starting
2% + GST
Features
Minimum Documentation, Easy Online Application and Low Interest Rates
Frequently Asked Questions (FAQs)
Who is eligible for a personal loan?
Personal loans are available for salaried employees, professionals, individuals with high net worth, regular pensioners, or family pensioners drawing regular monthly pensions, to name a few.
How can I repay my loan?
Most banks allow lenders to repay the EMI via auto-debit instructions from their bank account on a stipulated date every month.
Do I need an account with the bank to get a personal loan?
It is not mandatory to have an existing account with the bank. Nevertheless, you may get a loan at a lower interest rate if you have a savings or salary account with the bank.
What is the repayment timeline for personal loans?
The repayment tenure is usually 6 to 84 months, depending on the banks.
Which bank is offering the best interest rate on a personal loan?
The above table shows the current interest rate provided by major Indian banks on personal loans.
Secured or unsecured personal Loan: which one is better?
A secured loan allows you to obtain a personal loan against an asset as collateral. To get an unsecured personal loan, your credit score must hit the mark to qualify, usually 700 and above.
What is fixed and variable interest on a personal loan?
Fixed-rate loans have a fixed interest rate that remains unchanged throughout the repayment tenure. Variable or repo-linked interest rates change according to RBI’s rate changes.
