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Personal Loan Interest Rates

Personal Loan Interest Rates : October 2022

One of the most sought after loans is a personal loan. Sanctioned by banks and NBFCs without any security or guarantor, you can avail a personal loan to meet any of your various financial requirements. There are several lenders in India who offer personal loans to their customers and you can easily apply for it either online or offline. However, before you avail a personal loan, you must check the interest rates offered by different lenders..

The following table gives a comparison of interest rates on Personal Loans offered by various lenders as of October 2022

Last updated: 2nd October, 2022

PL

PL ROI Range

Processing Fees

Lock In period

Foreclosure charges

Tata Capital

10.99 to 21.50%

0.99% of loan amount

12 months

4%

HDFC BANK

11 to 21%

3999

12 months

4%

AXIS BANK

10.99 to 24%

2499

12 months

5%

ICICI

10.75 to 19.50%

4999

12 months

5%

FULLERTON

11.99 to 36%

1.5% of loan amount

6 months

7%

KOTAK

10.99 to 17.99%

2499

12 months

5%

YES BANK

10.99 to 21.50%

0.5% of loan amount

12 months

4%

IDFC FIRST BANK

10.75 to 19.50%

1% of loan amount

12 months

5%

BAJAJ FINANCE

13 to 18.99%

0.5% of loan amount

6 months

4.50%

 

Factors affecting Personal Interest Rates

Before applying for a personal loan, knowing what factors are included is essential. Below listed are the factors that directly affect the personal loan interest rates.

Net Monthly Income: Borrower's income is the basic and primary need to determine the personal loan interest rate. Until you don't have a constant and good salary, it's tough to get your personal loan approved. Working professionals with handsome salaries are more responsible for repaying the loan. Hence, they have the eligibility to get loans at a lower rate compared to other borrowers with a lower income. However, what monthly income is good to get a lower interest rate, varies from one bank to another.

Your Credit Score: The credit score is the thin line that determines whether you qualify for a loan or not. It is a common factor that every lender/bank considers to acknowledge your loan approval. Usually, your credit score reflects your financial health and gives insight into your financial practices. It ensures that the borrower can timely repay the loan. A higher credit score (above 750) can get lower interest rates.

However, borrowers with lower credit scores get a higher interest rate on their personal loans. Remember, based on your financial habit and other considerable factors, you may get a higher interest rate even if your credit score is above 750 points.

Employer's Status: Personal loans are also termed unsecured loans as they don't require any guarantor or collateral. Hence, your creditworthiness is also judged by your employment status. You get a lower interest rate on personal loans if you are working in a reputed company (a well-known organization). It assures the banks/lenders to get the loan amount on time. 

However, borrowers working in startups or small firms usually get personal loans at a higher interest rate. 

Your Debt-to-Income Ratio: Debt to income ratio is the percentage of the debt you own compared to your net monthly income. The standard debt to income ratio must be below 30%. If you have a higher ratio, you may get a higher interest rate.

A higher debt to income ratio reflects a higher debt burden that might result in repayment challenges. Hence, the lenders may charge a higher interest rate based on your higher debt to income-ratio.

Relationship with Lender: Regardless of what bank, lender, or fintech firm you have shortlisted for the personal loan, it's important to know how your reputation. If you have a sound relationship with the personal loan provider, you have a chance of getting a lower internet rate.

E.g., you have a chance of getting a lower interest rate if your existing bank account, health insurance, term insurance, etc., are from the same bank. It strengthens your relationship with the bank and provides you with a better deal on a personal loan.

Default History: Many borrowers have a bad financial history that includes a few loan defaults. Your loan defaults are clearly listed in your credit report. Moreover, it has a direct impact on your new loan request. Hence the bank or lender continuously checks your default history and charges you a higher interest rate if you have a default history.

Loan Tenure: Yes, your personal loan tenure also strongly impacts the rate of interest. Getting a personal loan for a short period includes lower risk for the banks, which results in a lower interest rate. However, you get a higher interest rate on a longer repayment tenure.

Bank V NBFC V Fintech: When getting a personal loan, the bank you choose matters a lot. Banks, BNFC, and Fintech companies vary in their base interest rate. A government bank will always provide you with the lowest interest rate on a personal loan compared to private lenders.

How can you get the lowest rate on a personal loan?

Maintain a Good Credit Score: Your credit score matters the most when looking for a lower interest rate on personal loans. The credit score ranges between 300 and 900, where 900 is the best credit score for any borrower. 

If you have a credit score near 900, your chances of getting a lower-rate personal loan are higher. With a higher credit score, you get the opportunity to get you're a reasonable interest rate and desired loan amount. A higher credit score reflects your responsible nature towards your financial actions. 

You should ensure your credit utilization ratio is below 30% and maintain a credit mix including personal loans, credit cards, home loans, and other credit facilities. Consuming a higher credit ratio takes you under the 'credit hungry' category.

Maintain a Good Repayment Track Record: If you have an existing loan with monthly EMI, it's good to repay them in time without delay. Any delay in your repayment will add a penalty to your EMI alongside putting a late payment mark. It's also better to pay the utility bills and credit card bills in full. With regular and timely repayment, you can get a lower interest rate on personal loans.

Compare Interest Rates Offered By Different Lenders: Comparing different banks and lenders is a good practice to find a better option before finalizing one for a personal loan. You can check multiple banks' personal loan eligibility criteria to find the best option among them. You can also visit online portals offering head-to-head comparison between different lenders and shortlist a few that fits your requirement.

Look Out For Special Offers: When looking for lower interest rates on personal loans, it's essential to look for special offers during the festival seasons. Banks often announce attractive offers during special occasions year-round. Such periods give you vast opportunities to save on repayment, interest rate, etc. Hence you should check for the offers on different lenders and find one that excites you the most.

Good Existing Relationship with the Bank: Relationship building is a good option you should always prefer in the long run. Whether you need a personal loan or not, it's essential to maintain a healthy relationship with the bank. Lenders or banks with a good relationship provide high chances of negotiating for a lower interest rate on the personal loan. 

If you are an existing bank customer, they already know your credit behavior. They hence have better chances of offering you a lower interest rate compared to a new lender/bank with no financial connection in the past.

Check the Method of Interest Calculation: It is usually advisable to check out how a lender determines the interest rate for personal loans. Loans can be obtained from lenders at either a fixed interest rate or a reducing interest rate. When there is a flat interest rate, interest is calculated for the entire loan term on the total loan principal. Loans are frequently offered at lower interest rates, but you might have to pay more interest over the loan tenure. 

The interest on a personal loan is only computed on the outstanding principal when using the reducing balance method. As a result, applying for a personal loan with a decreasing interest rate could end up costing you less money than applying for one with a fixed interest rate, and vice versa.

Have A Good History Of Employment: Long-term stability in your career benefits your eligibility for personal loans and for obtaining reduced interest rates. Lenders frequently demand that candidates have a minimum two-year employment history, including one year with their present employer. Personal loans with better conditions and cheaper interest rates are commonly provided to those who work for reputable public and commercial organizations, the federal or state governments, etc. This is because the applicants in question have steady employment and income, making it less likely that they will fail on their loans.

 

What are the factors to consider in a Personal Loan apart from interest rates?

Loan Processing Charge: Banks can charge you for administrative expenses when processing your personal loan request. These expenses are better known as processing fees. The processing fees typically cost between 0.5% and 2.50 percent of the overall loan amount. This is negligible compared to the loan sanctioned; still, you must know the amount as it can make a small difference in the final cost of the personal loan. Moreover, the minimum and maximum percentage of the loan processing fees differ from one bank to another.

Verification Charges: Every lender or bank runs a hard credit check and detailed verification before the loan is sanctioned. Hence, they put verification charges that include involving third-party organizations to prove your identity and validate the data provided. It also includes getting into your credit report and acknowledging your past based on your financial activities. The verification process takes time and involves manpower; hence it comes with the verification cost to compensate for the efforts and manpower involved in the entire process.

Penalty On EMI Defaults: Numerous borrowers across the country default on their personal loans and are charged with an EMI penalty. Banks always inform you days before your repayment due date. Hence it's essential to manage enough funds for auto EMI debit. If you fail to repay the EMI on time, a penalty that includes high charges on the delayed payment will be imposed.

To know how to calcuate the EMI on your personal loan, use this Personal Loan EMI calculator

Duplicate Statement Fees: Many people reach the branch and request a duplicate statement document regardless of the reason. In such a case, document statement fees are required to get access to your loan account details and get its duplicate copy.

GST: The charges shared above don't come solely. Instead, they are attached to the GST imposed by the Government of India. The GST is imposed on all additional charges added to your personal loan requests.

Prepayment/Foreclosure Penalty: Banks earn from the interest you pay them after getting a personal loan. However, banks have less or nothing to earn if you prefer foreclosure. That's why banks always impose a prepayment or foreclosure penalty as your principal amount is decreased with the payment, resulting in lower tenure and lower interest rates.

It's important to note that all this information is clearly mentioned in the contract. You should read every line in your personal loan contract and ensure no hidden charges are involved.

 

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