What is an Interest Rate?

An interest rate is the proportion of principal charged by the investor for the borrowing of its cash. The principal is the quantity of cash loaned.  

An interest rate can either be the worth of cash borrowed or the incentive for saving the same. It’s calculated as a proportion of the quantity borrowed or saved.  

You can borrow cash from banks once you fulfill the eligibility checkpoints. Different loans may be used for getting a vehicle, renovating your home, or paying for education, among a lot of other things. 

Banks borrow cash from you in the form of a variety of deposits, and interest is what they pay you as an incentive of the money deposited. The money from deposits is used by them to fund loans. 

Banks charge borrowers a rather higher interest rate than they pay depositors. The distinction is their profit. Oftentimes, banks vie with one another for a lower interest rate to attract customers, thus enabling them to stand out amongst the others. 

Interest rate is one of the basic/key factors that confirm the value of borrowing. A lower interest rate is desirable because it decreases the interest payout for the receiver over the whole loan tenure. 

Personal Loan

Personal Loan may be defined as a short to medium term unsecured loan, that doesn’t need any collateral/security for disbursal. They’re usually disbursed in a few hours to some days with token or no paper work at all. A flexible end-use is the unique selling point of Personal Loans. Thus, this unsecured loan is meant to meet a range of wants starting from emergency medical expenses to planned expenditures like home renovation, wedding, etc. 

You should apply for a Personal Loan because of the subsequent reasons: 

  • No collateral needed: A personal loan is an unsecured loan, therefore you do not any collateral/security to avail a personal loan. 
  • Different types of end use: A personal loan can be used for a multitude of purposes, unlike a home loan or a car loan, ranging from medical emergency expenses to home renovation. 
  • Minimal mandate of Documentation: The documentation process to avail a personal loan is far simpler and faster that the process to avail a secured loan like a Home Loan. 
  • Debt consolidation: Multiple loans and/or credit card dues can be merged by taking up a personal loan. This will make repayment of debt not only easier but will also help you to save on interest pay-out. 

Current Personal Loan Interest Rates in India 

The interest rates of personal loans vary from one bank to bank. These interest rates can also be affected by factors which are based on the application, such as credit score of the applicant, principal of loan and duration of it.  

 
Let us look at and tally the interest rates offered by the leading banks and NBFCs in India :  

ProvidersRate of Interest (p.a.)Amount Loaned
Allahabad Bank 9.05% onwards As per customer profile 
Andhra Bank 8.90% onwards Maximum 15 lakhs 
Axis Bank 10.49% onwards 50,000 up to 15 lakhs 
Bajaj Finserv 12.99% onwards Up to 25 lakhs 
Bank of Baroda 10.50% onwards 50,000 to 10 lakhs 
Bank of India 9.35% onwards Up to 10 lakhs 
Bank of Maharashtra 9.55% onwards Up to 10 lakhs 
CASHe 33% onwards 9,000 to 3 lakhs 
Central Bank 8.45% onwards Up to 20 lakhs 
Citibank 9.99% onwards 10,000 to 30 lakhs 
Early Salary 24% onwards 8,000 to 5 lakhs 
Federal Bank 10.49% onwards Up to 25 lakhs 
Fullerton India 11.99% onwards Up to 25 lakhs 
HDFC Bank 10.75% onwards 50,000 to 40 lakhs 
Home Credit 24% onwards Up to 2.4 lakh 
HSBC Bank 10.50% onwards Up to 30 lakhs 
ICICI Bank 11.25% onwards 50,000-20 lakhs 
IDBI Bank 12% onwards 25,000-5 lakhs 
IDFC First 10.75% onwards 1 lakh-40 lakhs 
Indiabulls 13.99% onwards Rs.1000 to Rs.15 lakhs 
Indian Bank 9.05% onwards As per customer profile 
Indian Overseas Bank 10.30% onwards Up to 15 lakhs 
IndusInd Bank 11% onwards 50,000 – 15 lakhs 
Kotak Mahindra Bank 10.75% onwards 50,000 – 20 lakhs 
Kreditbee 1.02% p.m. onwards 1000 – 2 lakhs 
Moneytap 1.25% p.m. onwards Rs. 3000 to Rs. 5 lakhs 
Moneyview 1.33% p.m. onwards Rs.10,000 to Rs.5 lakhs 
Muthoot Finance 13.50% onwards Rs. 50,000 onwards 
Punjab National Bank 8.95% onwards 25,000 to 15 lakhs 
RBL Bank 14% onwards 1 lakh to 20 lakhs 
Standard Chartered Bank 11.00% onwards 1 lakh to 50 lakhs 
State Bank of India 9.60% onwards Up to 20 lakhs 
TATA Capital 10.99% onwards 75,000 to 25 lakhs 
UCO Bank 8.70% onwards Up to 10 lakhs 
Union Bank of India 8.90% onwards Up to 15 lakhs 
Yes Bank 10.99% onwards 1 lakh to 40 lakhs 

To avail a personal loan, you also need to pay a processing fee of up to 4.13%. 

Fincity lets you borrow up to Rs.50 lakhs, which can be repaid over a flexible tenor which comes with the lowest interest rates, negotiable based on CIBIL score and repayment history. 

Types of Personal Loan Interest Rates 

There are basically two types of Interest rates applicable on a personal loan, they are: 

  • Fixed Rate of Interest 
  • Floating Rate of Interest 

a) Fixed Rate of Interest: In this case, the interest rate remains the same throughout the tenure of the loan. Consequently, monthly EMI amount also remains fixed throughout the loan repayment period. This might assist you set up your monthly expenditure in the long run. 

b) Floating Rate of Interest: This either depends on the internal benchmark set by the lender or as per the current conditions of the market. Therefore, change is liable on floating interest rate periodically which thus leads to increase/decrease in the tenure of the loan or monthly EMI which is dependent on the direction of change of interest rate – upwards or downwards. 

Methods for Interest Calculation on Personal Loan

There are 2 ways in which Personal Loan Interest Rates are calculated – Flat Rate and  

Reducing Balance Interest Rate 

Diminishing charge per unit or reducing charge per unit is applicable to the outstanding loan balance once payment of every EMI is done. 

A. Flat Rate Method:  According to this methodology, an individual is charged a rate of interest on the entire loan quantity when initially borrowed. As a result, the EMI quantity remains constant throughout the loan tenure. The formula that supports this method of EMI calculation is as given below: 

EMI Calculation by Flat Rate Method = (Principal + Interest) / Loan Duration in Months 

Example: Mr. Y availed a loan of Rs. 10 lakhs at a flat rate of interest of 12% for a period of 36 months. 

i.e., Interest for 1-year is 12% of Principal i.e., 12% of Rs.10 lakhs which is Rs.1,20,000 

Thus, interest for 3 years equals to 3 * Rs.1,20,000 = Rs.3,60,000 

EMI = (Rs.10 lakhs + Rs.3,60,000) / 36 = Rs.30,778 

B. Reducing Balance Method:  

In this technique, interest is charged solely on the outstanding loan principal and not the full quantity at first borrowed. Hence, this technique permits you to save a lot on the interest part of the loan. The formula that supports this method of EMI calculation is as given below: 

P multiplied by R multiplied by (1+R) ^ n divided by [(1+R) ^ n-1] 

P = Principal figure of the loan 

R = Interest Rate 

N = Number of instalments per month. 

The above-mentioned terms, along with some additional fees, in this case, the processing fee are needed to determine your EMI. 

For example, suppose you have opted for a personal loan of Rs. 20 lakhs for 2 years at an interest of 20 % p.a. 

Initially, we need to convert the interest rate per annum into a monthly rate and the tenure into months. 

To be able to calculate the rate of interest per month, we have to divide the annual interest rate by the number of months in a year, so monthly 20/12 = 1.66% per month 

The loan tenure of 2 years must also be converted into months before taking it into consideration into the formula i.e., 24 months 

 Now we have the three different terms with us which we can integrate into the formula as follows: 

EMI = [20,00,000 x 1.66 / 100 x (1 + 1.66 / 100) ^ 24 / [(1 + 1.66 / 100) ^ 24 – 1) 

EMI = Rs.1,00,179 

Factors That Affect Personal Loan Interest Rates 

  • Credit score – Applicants with a minimum credit score of 750 can avail a personal loan. Applicants who hold a high credit score can avail lower interest rates. 
  • Occupation – Financial establishments might supply completely different interest rates to salaried and freelance applicants; the former could also be, every now and then be considered less risky. 
  • Income – A lower rate of interest can be availed by an individual with a higher income, owing to reduced chances of default. 
  • Age – Individuals with a lower age will receive cheap rates than those nearing retirement. Young candidates have a lot of years of service left and are considered less risky. 
  • Employment organization – The individuals employed in a reputed organization may be liable to receive lower rates. 
  • Association with the lender – Existing customers of a financial establishment may additionally receive lower rates. 

EMI: What Does it Mean?

Whenever we tend to say loans, one important and primary factor that crosses the mind is EMI. The term EMI is short for Equated Monthly Instalment. An equated monthly instalment (EMI) is defined as the quantity that a loan receiver pays monthly to a lender so as to repay the money borrowed. There’s a specific date every month by which the EMI ought to be paid by the receiver. The loan quantity and the accumulated interest is split equally over an amount and you’ll be able to simply calculate this final quantity with an EMI calculator. The amount of equated monthly instalments is equal to the number of months within the loan reimbursement tenure. 

EMIs are a good choice as you can pay the loaned amount back in sections and this thus reduces the financial pressure on you. The EMI style is recommended as it may be not be easy for everyone to repay a lump sum amount of money all at once especially in case of large amount such as home loans. Therefore, EMIs are the simplest bet as you’ll be able to pay in parts over the loan length and repay the quantity borrowed fully. EMIs provides a broad section of society the choice to fulfil their dreams of affording high-priced things, like a home, car, etc., which they wouldn’t have been able to get if they required to do all the payments promptly. With the help of an EMI calculator, you’ll be able to simply decipher your loan EMI demand and set up your monthly budget consequently. You’ve got the choice to come to a decision of the amount that you are required to pay off monthly and therefore the length that you want to form the payments relying upon your financial gain and money stability. 
  

EMI payments contribute towards the loan amount and increased interest on the loan quantity. The initial EMI payments contribute additionally towards the interest element of the loan and this procedure is termed as front loading. In the later stages of the loan tenure, the main contribution of the EMI goes towards reimbursement of the loan principal.  

Commonly, EMIs are set and therefore the recipient needs to pay set (fixed) monthly instalments to satisfy the loan quantity. But, the loan EMIs will vary in the case of floating charge per unit loans and prepayments. The quantity of your monthly EMI depends on all the factors referring to your loan. You’ll calculate the EMI applicable to your loan applying the formula for EMI. But, applying the formula isn’t a simple task and involves sophisticated calculations. Rather, choosing an EMI calculator could be a more sensible choice because it determines EMIs in a matter of seconds of your input.  

A personal loan is an unsecured loan that does not require you to submit any collateral or an equivalent. It is given for various uses like wedding, education, medical emergency, travel, home renovation, etc. Both salaried and freelance can apply for this type of loan. The loan comes with engaging interest rates and versatile reimbursement choices. You’ll be able to either apply on-line or at the branch of the bank or non-banking financial company (NBFC). You may additionally have to be compelled to pay the processing fee at applicable rates. The investor can assess the loan eligibility supported your financial gain, credit score and reimbursement potential. 

Personal Loan Eligibility Criteria 

A personal loan is provided to people and not businesses. Most banks and NBFCs (Non-Banking Financial Companies) provide personal loans to each salaried and freelance individuals / professional. The eligibility criteria for a private loan vary slightly depending on the type of individual. Following are some of the key consumer loan eligibility factors that require not to be forgotten: 

ParticularsSalaried IndividualsSelf-Employed Individuals
Age 21 – 60 years 21 – 68 years 
Minimum Income Rs. 15,000 a month Rs. 5 lakhs per year (gross) 
Employment stability Total experience– Minimum of 2 years Experience in the current organization- Minimum of 1 year Minimum of 2 years in current business 
Minimum Credit Score >750 >750 

Interest Rates for Different Applicant Types 

Most lenders think about variety of things once deciding the charge per unit applicable to non-public loan candidates. One of these is the applier sort. The subsequent are some insights concerning how consumer loan interest rates tend to vary relying upon the kind of applicant: 

  • Salaried and self-employed:  Whether the individual is salaried or freelance will considerably impact the rate applicable to a private loan. Generally, salaried workers with a stable employment record, operating with acknowledged organizations tend to induce a private loan at a lower rate of interest than the latter. This can be as a result of salaried workers operating with an acknowledged company have bigger job security, and in most cases higher ability to repay their loan. However, freelance candidates with a stable supply of financial gain may avail of personal loans from banks and NBFCs at competitive interest rates. 
  • Women: Certain banks and NBFCs offer a preferential rate of interest to women. This is in an attempt to promote salaried women, entrepreneurs, and professionals to fulfill their dreams and be financially stable. 
  • Pensioners:  Pensioners will avail of special consumer loans specifically meant for them at a comparatively lower rate of interest from banks. In most cases, an advantageous (lower) charge per unit on pension loans is accessible just in case, the program is controlled by the chosen investor. 

Please note that apart from the applicant kind, rate of interest depends on the individual profile. Individuals with a stable supply of financial gain, smart credit history and high credit score tend to receive a loan at a lower rate, no matter their class 

How to Get Low Interest Rate on Personal Loan? 

Follow the below-mentioned tips to get low interest rate on your personal loan: 

  • A high credit score ought to be maintained. 
  • A low credit utilization ratio should be kept. 
  • Also maintain a low FOIR (fixed obligation to income ratio). 
  • Do not apply for a personal loan with multiple lenders simultaneously. 
  • It is advantageous to opt for your personal loan from a bank/NBFC with which you already have a relationship, such as having a savings account or a fixed deposit. 

Generally, banks offer loan at a lower rate of interest than non-banking financial corporations (NBFCs). However, the eligibility criteria for private loans from banks is usually additional demanding than that of NBFCs. 

Personal Loan Processing Fee and Other Additional Charges 

You can find the different additional charges of different lenders 

Bank NameProcessing ChargePre=payment ChargeLate Payment Charge
HDFC Bank At most 2.5% [Range of Rs.1,999 to Rs.25,000] For a period of up to 24 months – up to 4% of the outstanding principal For a range starting from 25 months to 36 months – up to 3% of the outstanding principal For over a period of 36 months – 2% of the outstanding principal 2% of the overdue principal or EMI per month or 24% per annum 
ICICI Bank At most of 2.25% p.a.  Additional taxes charged separately 5% each year of the principal outstanding + taxes 24% each year on the remaining amount from the default date 
Kotak Mahindra Bank Up to 2.5% p.a. + taxes Mandatory period of Lock-in for 12 months, post which – 5% charges for foreclosure + taxes 3% per month (monthly compounding inclusive) 
State Bank of India (SBI) 0 to 1% of the amount of loan– subject to other factors In Xpress Power Loans, Xpress Credit group of loans, and Xpress Pension Loans – 3% Rs.500 + applicable tax per dishonoured EMI 
Yes Bank Up to 2.5% of the amount of the loan [with the condition of a minimum of Rs.999 + tax] Up to 4% of the principal outstanding for 13-24 months 3% of the outstanding principal for 25-36 months  2% of the outstanding principal for 37 to 48 months  For more than 48 months – Nil Up to 24% per annum on the outstanding amount after the date of default 
Union Bank of India 0.5% of the loan amount [subject to a minimum of Rs.500 + taxes] – – 
Bank of Baroda 2% of the loan amount + taxes [ condition – minimum of Rs.1,000 and a maximum of Rs.10,000] – 2% on overdue amount 
Bank of India 2% of the loan amount + tax [condition being a range of Rs.1000 to Rs.10,000] Nil – For floating rate loans  0.65% p.a. of the loan amount outstanding for the remaining tenure till maturity – 
Dena Bank 1% of the amount of the loan Nil – 

The pre-closure charges can be a maximum of 4% along with the taxes applicable on the principal outstanding. 

Personal loan foreclosures mean the closing of the loan account before the particular tenor. several borrowers prefer to try this to stay away the complete obligation of the loan. However, you may have to pay some consumer/personal loan pre-closure charges to the provider if you are doing that. 

To avail the personal loan, you also need to shell out a little on the processing fee. The processing charge at Fincity is up to a maximum of 4.13% of the total loan amount. 

You do not have to pay any amount for downloading e-statements via a customer portal like Experia. But you may have to pay Rs.250 + taxes if you want to possess physical copies.

Things to Note Before Taking a Personal Loan 

While choosing a personal loan with a low interest rate, there are some additional things that might need your attention: 

Processing Fee: Banks and NBFCs impose a one-time charge known as the processing fee, which can significantly up the cost of the loan. Even though you may be a low interest rate customer, the need to check and tally the processing fee charged by different loan providers is crucial. 

Pre-Closure Charges: Specific loan providers may levy upon you a pre-closure fee if the outstanding loan balance is repaid before the completion of the loan tenure. Hence always make sure to check if the bank/financial institution that you are applying for a personal loan to levies any type of pre-closure charge. 

Customer Service: In order to have a good personal loan event, it is important to apply to a lender that offers good customer service and also after-sale customer care. Before turning in your loan application, we advise you to examine the customer care channels that are available and how quick the lender is in providing you help when you need it. At Finicty, our dedicated team of experts make sure you have a wonderful personal loan experience, right from the application to the disbursal of the loan amount! 

Criteria of Eligibility: Although competitive interest rates could be offered by the loan provider or financial institution, it is advised that you make it a point to check if the eligibility criteria specified by the lender is met by you. Thus, ensure that income meets set limit and age requirement is satisfied. 

Loan Disbursal Time: Often-times, personal loans are taken up to cater to a medical emergency, hence it is crucial to take into account the loan disbursal time. A lot of leading banks and financial institutions are capable of disbursing the loan amount within a matter of seconds. 

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