Personal Loan Interest Rates

Types of Personal Loan Interest Rates

Banks and other financial institutions offer two types of personal loan interest rates, i.e. fixed interest rate and floating interest rate. Borrowers can opt for any as per their convenience and repayment capabilities.

Fixed Personal Loan Interest Rate

As the name suggests, a fixed interest rate remains static throughout the loan repayment tenure. The essential advantage of choosing a fixed rate is that you don’t have to worry about fluctuations in the repo. You can plan your finances better as you don’t have to worry about the surge or fall of interest rates.

Floating or Variable Personal Loan Interest Rate

On the contrary, floating or variable interest rates are dynamic. The personal loan interest rate increases whenever there is a change in government policies, specifically a repo rate hike. It further results in increased monthly repayments. The essential advantage of a floating interest rate is the overall loan cost decreases by 2% to 3%. It usually happens when the rates go low rooted to RBI’s repo rate.

Personal Loan Interest Rates for Salaried Employees

Due to the increased income certainty, banks and NBFCs favour giving personal loans to salaried employees. Applicants with job stability are considered to be less risky, and salaried applicants working for government or PSU entities are given higher preference. Employees in the private sector who work for major corporations and MNCs get second priority. Age, monthly income, work and employer profiles, credit score, and other characteristics are also considered when determining interest rates for candidates receiving a salary. Applicants can also get pre-approved personal loans to meet financial obligations with quick disbursals based on their credibility. Personal loan interest rates for salaried employees usually start from 10.49% onwards.

Personal Loan Interest Rates for Self Employed

Self-employed and non-professionals can secure personal loans from almost all major banks and financial institutions based on their eligibility. They can expect a personal loan interest rate starting from 10.25% per annum onwards. However, the offered interest rates can vary from one borrower to another based on credit score, amount, age and credibility.

Personal Loan Interest Rates for Pensioners

Banks and NBFCs approve personal loans for retirees who keep a pension or pension payment order with the bank. The monthly pension that the owner of the pension account draws from his pension account determines whether the application for a pension loan will be approved. For pension loans, banks often do not request collateral or margin. Banks’ interest rates for pension loans are often lower than those charged for personal loans and usually start from 9.25% onwards.

Personal Loan Interest Rates for Women

For women to meet their own needs, such as for education, marriage, travel, medical care, etc., several banks and NBFCs provide specialised personal loan programmes. If lenders do not offer women-specific personal loan programmes, female applicants may still be able to obtain regular personal loans to meet their financial obligations. Lenders would consider an applicant’s credit score, age, employer profile, work profile, minimum monthly income, and other components of her credit profile, just like any other lending programme. As a result, lenders typically only provide personal loans to homemakers and other females with employment. Women applicants for personal loans will also be given interest rates based on their credit histories starting at 10.49% annually. Banks and NBFCs do not lower their interest rates for female loan applicants.

How to Calculate Personal Loan Interest Rates?

To calculate personal loan interest rate outright, count on a personal loan EMI calculator. It is a handy financial calculator with a user-friendly interface that allows you to compute significant results in split seconds. You must enter a few details, such as loan amount, repayment tenure and personal loan interest rate. 

If you wish to go with traditional interest rate calculation, compute values through the below given mathematical formula:

Equated Monthly Instalments: [PxRX(1+R)^N]/[(1+R)^N-1]

Where,

• P is the loan amount
• R is the offered rate of interest
• N denotes the number of monthly repayments.

Ways to Get Lowest Interest Rates on Personal Loans in India

To get the lowest personal loan interest rate in India, pin your hopes on below stated pointers:

• Try building and maintaining a good credit score of 750 or above.
• Look for pre-approved personal loan offers from major banks and NBFCs.
• Apply for a personal loan with banks and NBFCs with whom you already have a current or savings account along with good terms.
• Keep an eye on the rate of interest concessions various lenders offer during festivals to crack a better deal.
• By putting forward thorough research on personal loan offers and interest rates offered by various lenders

Factors Which Affect Personal Loan Interest Rates in India

Personal loan affordability is hinged on the offered interest rate. A higher rate of interest can result in higher EMIs and vice versa. However, depending on certain factors, personal loan interest rates can vary from one bank to another and from the borrower to another.

Here are five major factors that affect personal loan interest rates in India:

• The borrower’s Income is the foremost factor in determining the offered interest rate. Applicants with higher monthly income tend to unlock lower personal loan interest rates as they are more credible and capable of making on-time payments as per the lender’s perspective.
• Credit History: Before approving a personal loan application, lenders evaluate the applicant’s credit history and check their credit score. This three-digit score plays a vital role in concluding the offered interest rate; the higher the score, the lower the interest rate.
• Organisation’s Reputation: Banks and finance providers look into the employer’s reputation before approving a loan application. You might have to pay higher interest rates if you work for an organisation with a bad reputation, especially in terms of loan defaulters.
• Loan Payment History: An applicant who has an ongoing loan or has borrowed a loan in the past is sanctioned with the requested amount based on the loan repayment history. On-time payments and good loan repayment history help unlock the best interest rates.
• Banking Relationship: A good relationship with bank executives and credit managers can be a blessing when applying for a personal loan. The bank would not want to lose a good customer to a competitor and will offer you the best interest rates.

Consider these five significant factors before applying for a personal loan. Additionally, make sure that these factors are in your favour.

Things to Consider while Selecting a Personal Loan

While hunting down the best possible deal on a personal loan, there are certain things that you must take into consideration. Here are certain things that you should not skip when applying for a personal loan:

• Processing Fee: This is a significant amount you must pay to process your loan application. Usually, it ranges from 2 to 3%; thus, you must get acquainted with the processing fee and compare the same before choosing your credit provider.
• Pre-Closure Charges: Several banks and financial institutions charge loan pre-closure charges when you decide to repay the borrowed amount in one go before the loan closure date. It can vary from one lender to another; thus, get familiar with the same to understand how much you will have to pay while closing your loan account before the closing date.
• Customer Service: Even if you unlock the best personal loan interest rates, it will only be an excellent deal if the lender offers good customer service. Do a little research and know how the lenders tackle the clients and their problems.
• Eligibility Criteria: Understand the bank’s personal loan eligibility criteria and decide whether you cope with them. When you apply to a lender without knowing their eligibility criteria, the possibilities are your loan application gets rejected, which further creates adverse effects on your CIBIL score.
• Associated Fees and Charges: If the lender offers a slightly higher personal loan interest rate, but other related charges are negligible, you can save huge on the overall loan cost. It is better to pay higher interest rates than huge loan charges, which include default charges, part-prepayment and prepayment charges, EMI bounce charges, foreclosure charges, etc.
• Special Credit Offers: Several lenders offer lower interest rates during the festive season and other occasions. Thus, plum on such incredible offers to unlock an ideal personal loan deal.