Which rate of interest is best for a personal loan?

To lower your overall cost of borrowing, it is advisable to opt for a personal loan with a low interest rate. However, the rate you get will depend on your eligibility parameters and CIBIL score among other factors.

How does my income determine my interest rate?

Your income is one of the most crucial factors that depicts your repayment capacity. In this regard, if you have a higher income, the lender might disburse you the corpus at a lower interest rate. This is because a higher income can increase your creditworthiness.

What is the processing fee for personal loans?

The processing fee on a personal loan can be up to 3%-4% of the loan amount.

What is the pre-closure charge for personal loans?

The pre-closure charges for a personal loan can be from 0% to 5% of the outstanding balance.

What is the repo rate and how does it affect personal loans?

Repo rate forms the basis for determining personal loan interest rates for many financial institutions. Typically, personal loan rates are anywhere between 2-4% above the Repo rate.

How often does the variable or floating interest rate change?

Variable or floating interest rate changes whenever the Reserve Bank of India (RBI) revises their repo rate.

What is meant by Reducing Interest Rate with regard to Personal Loans?

The reducing balance interest rate is a system under which the payable interest is calculated on outstanding personal loan principal amount every month. The EMI amount calculated under this method is made up of a principal component and interest component calculated on the outstanding personal loan principal amount.

How does my credit score impact the cost of my loan?

While approving a loan application, one of the first factors that lenders consider is the borrower’s credit score. A higher credit score will ensure you fulfil the eligibility parameters. As a result, you may be able to obtain a personal loan at a lower rate of interest, thus lowering your cost of borrowing.

If I offer collateral, will it help me get a good interest rate?

A collateral may help you obtain a personal loan at a reduced rate of interest. However, note that since personal loans are unsecured, the acceptance of collateral to reduce the interest rate happens at the discretion of the lender.

Do banks change the interest rate during the loan tenure?

If you borrow with a fixed interest rate, the bank cannot change the interest rate during loan tenure. However, if you have obtained a personal loan at a floating rate of interest, your bank can change the interest rate as the MCLR changes.

Personal Loan Interest Rate

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Overview
EMI calculator
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Interest rates and charges

Personal loan can fund your dreams of going on a vacation, providing the best education to your children, refurbishing your home, and more. On Bajaj Markets, the lowest interest rate on personal loan is 10.49% p.a. However, interest rates and charges vary from lender to lender. Let us take a look at the current personal loan interest rates and applicable charges from various lenders. This information will help you compare different banks' personal loans before applying for a personal loan.

Compare Personal Loan Interest Rate 2023

Providers	Interest Rates	Processing Fees
Bajaj Finance Limited	13.5% p.a onwards	1% of the loan amount + GST
Fullerton India	12% p.a onwards	Between 0% - 6% of the loan amount
PaySense	14% p.a onwards	2% - 2.5% of the loan amount + GST or ₹500 + GST (depends on whichever is higher)
Axis Bank	10.49% p.a onwards	Up to 2% of loan amount
Muthoot Finance	14.50% onwards	2% - 4% of loan amount
CASHe	30% p.a onwards	₹1,200 or 2% of loan amount, whichever is higher + GST as applicable
Fibe	14% p.a onwards	Starting from ₹399 + ₹100 stamp duty
KreditBee	15% p.a onwards	From ₹500 to up to 6% of the loan amount
YES BANK	10.99% p.a onwards	From ₹1499 to 2.50% of loan amount
InCred	21% p.a onwards	2%-4% of the withdrawal amount
mPokket	24% p.a. onwards	Processing fee: Rs. 50 to Rs. 200 + 18% GST depending on the loan amount with maximum APR of 48%
IIFL	16.50% p.a. onwards	2.50% - 4% of the loan amount + GST
Upwards	1.50% p.m. onwards	Up to 4% of the loan amount with a minimum of ₹500
L&T Financial Services	11% p.a. Onwards	Up to 2% of principal outstanding + applicable taxes

How is Personal Loan Interest Calculated?

The basic formula to calculate personal loan interest rate is:

Interest = Principal amount x Interest rate

For instance, suppose a borrower avails a personal loan amount to Rs. 10 Lakhs at an interest rate of 12% per annum, with repayment tenure of 12 years. The interest, in this case, will be:

Interest = Rs.10 lakhs x 12% per annum = Rs.10,000.

You can further calculate your EMIs using this formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Here, P = principal amount, R = rate of interest, N = tenure

Applying this formula, your EMI will be Rs.88,849.

Further, for the next month, your interest will be calculated on the balance amount, i.e., loan balance – principal repaid.

Types of Personal Loan Interest Rate

There are two kinds of personal loan interest rates: Fixed and Floating.

Fixed Interest Rate: Here, the interest rate charged on the personal loan amount will remain constant throughout the loan repayment period. You know your personal loan EMI obligation at the start of the tenure, allowing you to plan your monthly budget accordingly.
Floating Interest Rate: Here, interest rates could change depending on changes to the Marginal Cost of Lending Rate (MCLR), the base rate set for banks by the RBI. With changes in MCLR, the interest rate on loans also gets revised. With a lower interest rate, the repayment amount is also reduced. On the other hand, your EMI obligation will also increase if the interest rates increase. A floating personal loan interest rate makes it difficult for you to ascertain your monthly financial obligation.

How to Get Low Interest Personal Loan

Maintain a good credit score, i.e. above 750
Maintain an excellent credit history with timely repayments
Compare interest rates and look for offers before availing of a loan
Check the interest calculation method to ensure you are paying low interest
The employer's credibility is an important factor to get you favourable deals
Your employment history and stability help in building a good credit score which greatly influences the interest rate

Factors Affecting Personal Loan Interest Rates

Various factors affect the rate of interest on personal loans. Having a fair idea about these factors will help you get the best personal loan interest rates.

Income Stability: Having a stable source of income assures the bank that you will be able to pay the loan on time. Higher the income, the higher your chances of getting a personal loan with a low interest rate.
Repayment History: An excellent repayment history helps you fetch a good personal loan. Your repayment history shows that you can service the loan in the stipulated time period without defaulting. This can significantly increase your personal loan eligibility and help you get a lower interest rate on your personal loan.
Relationship with Bank: The kind of relationship you share with the bank can also affect the personal loan rate. Having a savings account with the bank can be an added advantage. Depending on your credit score and relationship, you can negotiate for better deals. Also, based on your relationship and negotiation skills, the bank can consider a low interest personal loan.

What are Some of the Other Fees and Charges Levied by Lenders?

Apart from interest rate, you have to pay a few additional fees and charges to your bank. They are:

Processing fees
Prepayment and foreclosure charges
Verification charges
Penal interest
Documentation charges, and more

Note that it is crucial you assess these associated charges beforehand, as they can substantially affect your overall cost of borrowing.

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FAQs on Personal Loan Interest Rate

✔️Which rate of interest is best for a personal loan?

To lower your overall cost of borrowing, it is advisable to opt for a personal loan with a low interest rate. However, the rate you get will depend on your eligibility parameters and CIBIL score among other factors.
✔️How does my income determine my interest rate?

Your income is one of the most crucial factors that depicts your repayment capacity. In this regard, if you have a higher income, the lender might disburse you the corpus at a lower interest rate. This is because a higher income can increase your creditworthiness.
✔️What is the processing fee for personal loans?

The processing fee on a personal loan can be up to 3%-4% of the loan amount.
✔️What is the pre-closure charge for personal loans?

The pre-closure charges for a personal loan can be from 0% to 5% of the outstanding balance.
✔️What is the repo rate and how does it affect personal loans?

Repo rate forms the basis for determining personal loan interest rates for many financial institutions. Typically, personal loan rates are anywhere between 2-4% above the Repo rate.
✔️How often does the variable or floating interest rate change?

Variable or floating interest rate changes whenever the Reserve Bank of India (RBI) revises their repo rate.
✔️What is meant by Reducing Interest Rate with regard to Personal Loans?

The reducing balance interest rate is a system under which the payable interest is calculated on outstanding personal loan principal amount every month. The EMI amount calculated under this method is made up of a principal component and interest component calculated on the outstanding personal loan principal amount.
✔️How does my credit score impact the cost of my loan?

While approving a loan application, one of the first factors that lenders consider is the borrower’s credit score. A higher credit score will ensure you fulfil the eligibility parameters. As a result, you may be able to obtain a personal loan at a lower rate of interest, thus lowering your cost of borrowing.
✔️ If I offer collateral, will it help me get a good interest rate?

A collateral may help you obtain a personal loan at a reduced rate of interest. However, note that since personal loans are unsecured, the acceptance of collateral to reduce the interest rate happens at the discretion of the lender.
✔️Do banks change the interest rate during the loan tenure?

If you borrow with a fixed interest rate, the bank cannot change the interest rate during loan tenure. However, if you have obtained a personal loan at a floating rate of interest, your bank can change the interest rate as the MCLR changes.