A personal loan helps you meet urgent financial shortfalls. They do not carry an end-use clause and therefore can be put to any use. But they come at a higher rate of interest simply because they are unsecured loans and do not have collateral security backing. Thus, the rate of interest at which a personal loan is borrowed is the most crucial factor of the personal loan process.
The rate of interest on a personal loan is the interest rate at which the lender approves the personal loan. It is linked to the lending rate set by the Reserve Bank of India. It is the factor that indicates the cost of the loan. The higher the rate of interest on a personal loan, the higher will be the cost of the loan resulting in a high monthly EMI. The average rate of interest on a personal loan in India is generally around 9.5% per annum.
Personal loans are given by many banks and non-banking financial companies in India. Every lender promises unique benefits through its products, but what is the interest rate on a personal loan offered by far remains the most attractive feature that acts as the major pull factor for borrowers.
Listed below are some of the best personal loan interest rates in India:
Name of Lender | Rate of Interest |
Top Banks | |
SBI Bank | 08.50% p.a. onwards |
UCO Bank | 10.05% p.a. onwards |
IDFC First Bank | 10.49% p.a. onwards |
ICICI Bank | 10.50% p.a. onwards |
HDFC Bank | 10.50% p.a. onwards |
Kotak Mahindra Bank | 10.75% p.a. onwards |
Axis Bank | 12.00% p.a. onwards |
Yes Bank | 13.99% p.a. onwards |
Top Non-Banking Financial Companies | |
Tata Capital | 10.99% p.a. onwards |
Fullerton India | 11.99% p.a. onwards |
India Bulls | 13.99% p.a. onwards |
Bajaj Finance | 13.00% p.a. onwards |
Muthoot Finance | 14.50% p.a. onwards |
App-Based Personal Credit Line | |
Money Tap | Starting 1.08% per month |
Money View | Starting 1.33% per month |
Early Salary | Starting 2.50% per month |
PaySense | 15.96% p.a. onwards |
Home Credit | 19.00% p.a. onwards |
How to Compare the Personal Loan Interest Rate?
The rate of interest mentioned above is the least that the lending company offers. But the rate of interest at which your application will be approved will depend upon a range of factors like age, work profile, credit score, loan term, etc. therefore, before submitting a personal loan application to any lender, it is important to do an eligibility check or prequalification.
Once you get your eligibility terms in a soft inquiry, you can compare these for different lenders before you pick the best personal loan deal. The personal loan interest rate is compared on the following basis:
Although the lowest interest rate on a personal loan is linked to market lending rates and therefore changes periodically, the rate of interest that is offered to a loan applicant is dependent upon their repayment capacity and credit score. The factors that affect your loan interest rate are:
Searching for the best personal loan deal? Follow these simple steps that can help you enjoy a personal loan at a low rate of interest:
A personal loan can be availed at a fixed or floating rate of interest. In the case of a personal loan with a fixed rate of interest, the same rate of interest is charged for the entire loan term.
Therefore, the EMI value calculated at the start of the loan term remains the same throughout.
However, in the case of personal loans approved on floating interest rates, the rates change with the change in the MCLR (Marginal Cost of Lending Rate), causing the fluctuation in the corresponding EMI value.
While the personal loan taken on a fixed rate of interest makes you aware of the exact value of EMI, thereby helping in monthly budgeting, it does not allow you to take advantage of the drop in MCLR rates which can help in lowering the interest cost.
A personal loan may have a positive and a negative impact on your credit score. Submitting a personal loan application to multiple lenders at the same time is considered a hard inquiry and will harm the credit score. To avoid this, go in for pre-approvals with several lenders. This will enable you to understand your loan eligibility and other terms and conditions of the personal loan. Submit the personal loan application only once the lender is fixed.
Akin to credit cards, personal loans also help in improving credit scores. Ensure timely repayment of personal loan EMIs with no delays and defaults. This will help boost your credit score and thereby enable you to get future credit at favourable terms and conditions.
Are you looking for how to calculate EMI for a personal loan? Well, you can use the EMI calculator available online. It is available on the official websites of banks and non-banking financial companies. One can also visit third-party aggregator websites to learn how to calculate EMI for a personal loan.
The personal loan EMI is calculated using the mathematical formula -
EMI = [PxRx(1+R)^N]/[(1+R)^N-1]
Here, P is the loan amount, R is the monthly interest rate charged by the lender, and N is the repayment tenure in months.
To calculate EMI for a personal loan,
The personal loan EMI value corresponding to the input values will appear on the screen.
APR (Annual Percentage Rate) is the overall cost of the loan. It is a comprehensive total of the rate of interest, and other fees and other charges apply. Therefore, the lower the personal loan APR of the lending company, the lower will be the cost of the loan.
The rate of interest charged on a personal loan by banks is generally lower than the rate of interest levied by NBFCs (non-banking financial companies). This is because banks impose stringent eligibility checks. This lowers their credit risk. Therefore, if you fulfil all eligibility conditions and have all supporting documents in place, it is prudent to opt for a personal loan from a bank at a lower rate of interest.
The total interest paid on a personal loan can be checked through the EMI calculator. Provide the values of the principal amount, rate of interest, and loan term. The corresponding EMI value, along with the overall interest component of the personal loan, will appear on the screen.
The rate of interest charged on a personal loan is of significant importance. It is the direct cost. A higher rate of interest will result in higher loan costs. But in addition to the lowest rate of interest, other charges like processing fee, prepayment fee, foreclosure fee, default penalty, and other associated fees and charges must also be taken into consideration before choosing a personal loan lender.