Personal Loan Interest Rates

Personal loan can fund your dreams of going on a vacation, providing the best education to your children, refurbishing your home, and more. 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 Interest Rate on Personal Loans

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, personal loan 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 Rate on 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 interest 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 rate personal loan.

Personal Loan Interest Calculation Method

There are two methods to calculate interest: flat rate method and the reducing balance method. In the flat interest rate method, the interest rate is based on the complete loan amount you pay during the repayment period. In the case of reducing the balance method, the interest rate on the personal loan will be considered and calculated based on the outstanding loan amount.

Flat Interest Rate Calculation

EMI = (principal + total interest payable) / loan tenure in months

i.e. total interest payable = P x r x n/100

Where ‘P’ is the principal loan amount, ‘r’ is the interest rate, and ‘n’ is the loan tenure in months.

Floating Interest Rate Calculation

EMI = [P x r x (1 + r) ^n] / [(1 + r) ^(n-1)]

Where ‘P’ is the principal loan amount, ‘r’ is the interest rate, and ‘n’ is the loan tenure in months.

FAQs on Personal Loan Interest Rate

What is the lowest interest rate available on personal loans?

As of now, Axis Bank provides a personal loan at 10.49%, which currently is one of the lowest interest rate available.

How to calculate personal loan interest rate?

Personal loan interest rates are determined by the financial institutions themselves. The main factor that affects them are the lending rates of the Reserve Bank of India (RBI). Other factors that influence personal loan interest rates could be your principal amount, your credit score and your overall credibility.

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?

The repo rate forms the basis for determining personal loan interest rates for many financial institutions. Typically, personal loan interest 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 the outstanding personal loan principal amount every month. The EMI amount calculated under this method is made up of a principal component and the interest component calculated on the outstanding personal loan principal amount.