Indians, these days are more than willing to reach out to banks and financial institutions to fulfill financial goals or meet financial needs. For instance, The Economic Times reported that there has been a whopping 55% increase in personal loan applications solely for traveling abroad. Interestingly, nearly 85% of these loans are taken by millennials.
With the whole new generation of tech-savvy individuals, availing of a personal loan from traditional banks and financial institutions is not the only option these days.
It is crucial that you understand the personal loan interest rate structure in order to easily demarcate an attractive personal loan that is also economical to you in the coming years. When you comply with the personal loan eligibility, your lender may offer you a reducing balance or a flat rate of interest on your borrowed principal amount. Financial institutions decide which interest will be applicable to you, and hence it is necessary that you are aware of the calculation methods of the interest rates.
When calculating your interest through the flat rate method, the interest rate is calculated on the total principal amount on a yearly basis. A flat rate of interest generally leads to higher outgo as compared to a reducing balance rate. Since the interest rate will be calculated on the principal amount, without accounting for any reductions, the interest charged is, thereby, higher.
It can be computed using the following formula:
P+(P x R x T)/100
P= principal borrowed amount
R= rate of interest
T= Loan tenor
This is also known as an effective interest rate. Here, interest is calculated on the outstanding amount remaining after every loan repayment. If you make use of the reducing balance rate, you’ll find that the interest rate reduces as you approach the end of your loan tenor. As your outstanding loan amount decreases, so does the applicable interest rate.
To make it easier to understand, let us assume that you obtained a loan of ₹1 lakh with a repayment tenor of 2 years and a reducing balance interest rate of 12%. Your first EMI will be ₹1,0000, including interest and principal amount. Now, your interest in the next EMI will be the principal borrowed amount minus the repaid amount in the previous month as EMI.
Using any of the aforementioned formulas, you can effectively calculate the applicable EMIs. However, as opposed to physically calculating one’s personal loan EMIs, you can make use of an online EMI calculator.
To know how your interest rate on personal loan translates in your monthly EMIs, you can now use the Personal Loan Calculator on Finserv MARKETS. Here, you just need to add the principal loan amount, interest rate and the loan tenor to easily determine the loan EMIs of your personal loan. The benefits of using an online personal loan calculator are aplenty, but mainly include:
Increased accuracy and less scope for error
Easy to access for everyone
Saves on time
This is one of the most (if not the most) important factors that determine your interest rate. A good credit score (above 700) reflects that you are a trustworthy borrower and can be relied upon to make timely payments. This would, in turn, give financial institutions the confidence to levy a lower rate of interest. On the other hand, a lower credit score would deem you more of a liability and, thus, merit a higher rate of interest.
While this is surprising to most, age can play a big role in determining your rate of interest. Prospective borrowers who are nearing the age of retirement may be subjected to a higher rate of interest than those who are in the prime of their careers.
Those earning a higher income pose a lower risk to the loan provider and may, therefore, be offered lower rates of interest. The opposite is true for those earning comparatively lower salaries.
Financial institutions may offer existing customers lower interest rates. Being a loyal customer is often rewarded with such perks. Thus, it is important to cultivate a long-lasting relationship with the financial institution of your choice.
Here are the terms and conditions applicable on the personal loan interest rates available on Finserv MARKETS:
The Bajaj Finserv Personal Loan Interest Rate on Finserv MARKETS ranges from 12.99% p.a to 15.50% p.a.
All charges are levied in an utterly transparent and straightforward manner.
Many financial institutions and banks follow the reducing balance rate on personal loans. Also, it is crucial that your lender is transparent about all the charges levied and the costs incurred on your personal loan. When you opt for the Bajaj Finserv Personal Loans on Finserv MARKETS, you can rest assured that you won’t be charged a penny extra. Further, you can access your loan account just with a single click, anywhere anytime.