A personal loan, like in other retail loans, are available for individuals who have a steady income and need instant capital to finance their needs. Financial institutions in India offer personal loans and charge a certain interest rate upon the principal amount when the equated monthly installment (EMI) begins.
Since the continued impact of retail inflation prices, the Reserve Bank of India (RBI) has paused rate hikes, while most banks have kept the rate in personal loans unchanged in July 2023, while a few banks like Bank of Baroda, Bank of Maharashtra, ICICI Bank have decreased the minimum rate by five basis points (bps), maximum rate by 0.25 bps to 3 bps. SBI has increased the rate by 0.05 bps across all categories.
Forbes Advisor India has put together a list of interest rates on new personal loans provided to salaried and self-employed individuals by major lending institutions to help you choose the best deal.
The interest rates on personal loans are accurate as of Oct. 31, 2023.
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Personal Loan Interest Rates in November 2023
The interest rates on personal loans are accurate as of Oct. 31, 2023.
How do Interest Rates for Personal Loans Work?
The best way to understand interest rates on personal loans would be to understand what personal loans are.
Personal loans are a type of closed-ended credit with fixed monthly payments over a period that is predetermined by the financial institution. It can be anywhere between three, four or five years.
Now, the financial institution will evaluate the interest rate based on the principal amount that you have borrowed and is expressed by the lender as a percentage. The rate applied to your loan each will include any fees and other costs and is also known as nominal annual percentage rate or APR.
Factors that Determine Interest Rates for Your Personal Loan
Employment History and Employer Credibility
Many lenders will check for your employment history, your job stability, your residential stability etc. All of this along with your repayment capabilities and fixed obligation to income ratio (FOIR) will determine the interest rates that the lender will determine for you. It may not be mandatory, but if you are a government employee, then you may stand a better chance of getting a lower interest rate compared to someone who is not working with the government.
Now you may or may not work in a government job, but that does not always have to be a deterrent. Even if you are working in the private sector, the lender could look up your employer. Multinationals, reputed companies in various sectors who have a good reputation and who have a history of providing stable career options and good salaries can be a factor in how much interest rates you are charged.
Comparing Interest Rates and Offers
There are a lot of aggregator platforms that are available today to help you make an informed decision. Once you know your eligibility and requirement, you may choose to visit one of the financial websites which compare various lenders who are offering personal loans.
Do not underestimate a good relationship. If you already have a long-standing relationship with your bank or a non-banking financial company (NBFC), go ahead and take their advice. They may be able to customize a plan for you, suited to your requirements.
Good Credit Score and Repayment History
Quite a crucial factor. A good credit score would mean a score of 750 and above. This would give you a higher chance of getting a better interest rate. You should be able to maintain a good credit score if you have avoided direct loans and credit card applications.
Making timely payments for any loans that you may have also bodes well for your credit rating which in turn affects the interest rate determined for you. Timely payment of your EMIs if you have any or paying your credit card bills on time are factors that are noted by the lending organization and makes you a respectable and safe borrower.
Check Interest Calculation Method
Try and understand the finer nuances of how your interest is calculated. Different lenders may give you different interest rates, and while some may look less at the outset, you may end up paying a higher interest at the end of the tenure because of how they are calculated.
Check if your loan is a fixed or variable interest loan
As the heading suggests, fixed rate loans will have a fixed interest rate, which does not change over time. It will remain the same with the same monthly payment and the same interest rate. As far as variable rate loans are concerned, they usually start low as compared to fixed rate loans and hence may give you the feeling that they are better than a fixed rate loan.
But over a time, the interest rate may vary on the variable interest loan and that may totally throw your budget awry. Hence, fixed rate loans are always a better idea as you would know, that no matter the market situation, your interest rates will not increase.
Secured or unsecured personal Loan
In secured or unsecured loans, the biggest feature is that in the case of a secured loan, you take out the personal loan based on an asset or a collateral, say, for example, a property or vehicle etc. Secured loans are better, in the sense that they are easier to get approval for and your credit score is not a key factor.
Secondly, if you fail to pay up for a secured loan, the financial institution can take away your collateral. In a secured loan, the risk is lower for the lender, hence the rates are lower compared to unsecured personal loans.
If you were to opt for unsecured personal loans, then your credit score must hit the mark so that you can qualify. Besides, if you are unable to pay up the unsecured loan, the lender can sue you to recover its lost funds.
Repayment Timeline
Interest rates are higher where the money is borrowed over a longer period. That is because the risk to the lender is higher. Hence, personal loans taken for a shorter period are better and have lower interest rates because of the lower risks to the lender.
Hence, it would always be prudent to compare the interest rates from multiple providers. As you can see, the factors that determine a lower rate of interest are numerous: the time, whether they are secured or unsecured, whether your loan scheme is fixed or variable, whether you have a good credit score and good repayment history, whether you have a stable income or not etc.
How to Calculate Personal Loan Payments?
The total amount you’ll pay as EMI can be calculated after knowing the lenders’ rate of interest, term and amount. Let’s understand this with an example:
If you need a personal loan of INR 50,000, with 10% as interest rate and a term repayment period of 12 months, the Forbes Advisor personal loan calculator estimates that your EMI would be INR 4,396, and you’d pay close to INR 2,750 in interest over the principal amount.
How To Compare Personal Loan Interest Rates?
The interest rates lending institutions posted online only give an idea of what they offer, not an exact rate. Banks take a nominal GST charge, along with fees for processing, servicing, etc. Be sure to confirm the rate applied to your loan in addition to any fees and other costs, which is also known as nominal annual percentage rate or APR, with your lender before applying.
To qualify for a personal loan even after submission of application and documents, financial institutions still require to run a KYC check on the borrower’s credit.
Here’s the eligibility criteria and documents required to obtain a personal loan from banks.
Eligibility
– Minimum age is 21 to 58 years
– Working for min one to three years
– Borrower’s income should be min INR 10,000 to INR 15,000 per month
Documents
– Aadhar number connected with mobile number
– Valid PAN number
– Proof of identification
– Proof of residence
– Income tax return
– Bank account statement of last six months
– Latest salary slip
– Some banks also require a guarantor
Helpful Resources
Personal Loans For Self-Employed
Best Personal Loans Of 2023
How To Choose The Right Personal Loan In 2023
Best Marriage Loan For 2023
Frequently Asked Questions (FAQs)
Who is eligible for a personal loan?
Personal loans are available for salaried employees, professionals and individuals with high net worth, regular pensioners or family pensioners drawing regular monthly pension, to name a few.
How can I repay my personal loan?
Most banks allow lenders to repay the EMI via an auto-debit instruction from their bank account on a stipulated date every month.
Do I need to have an account with the bank to get a personal loan?
It is not mandatory to have an existing account with the bank. Nevertheless, you may get a loan at a lower interest rate if you have a savings or salary account with the bank.
What is the repayment timeline for personal loans?
Depending on banks, the repayment tenure is usually 6 to 84 months.
Which bank is offering the best interest rate on a personal loan?
The above table is the current rate of interest provided by major Indian banks on personal loans.
Secured or unsecured personal Loan: which one is better?
A secured loan allows you to obtain a personal loan against an asset as a collateral. To obtain an unsecured personal loan, your credit score must hit the mark so that you can qualify, usually 700 and above.
What is fixed and variable interest on a personal loan?
Fixed rate loans have a fixed interest rate which remains the same throughout the repayment tenure. Variable interest rate, or repo-linked interest, changes as per changes in the RBI’s repo rate.
