Features
Eligibility Criteria
Calculation
Fees and Charges
Do’s And Don’ts
What Are The Salient Features Of The Rate Of Interest?
The ROI Is Not Standard Across Lenders
Banks & NBFC’s offering Personal Loans charge interest as per the cost of funds and policy terms. Therefore loan seekers should check the offers available from various financers before submitting an application.
The Rate Of Interest Remains Fixed For The Allotted Tenure
The Rate of Interest For a Personal Loan is fixed at the time of disbursal, as is the monthly installment. The rate remains unchanged, and the EMI will remain fixed for the entire tenure.
The Rate Of Interest Offered To An Applicant Varies From Lender To Lender
The Interest rate and the amount offered to an applicant are governed by the eligibility criteria of the Bank/NBFC. Each organisation has its priority points according to which the customer is categorized for the lending of a Personal Loan.
The Monthly Installment Will Depend On The Rate Of Interest
Being able to repay the monthly installment easily and timely is necessary. Securing a low rate of interest will help to achieve a comfortable EMI for the repayment tenure.
How Is The Personal Loan Rate Of Interest Determined?
The Rate of Interest for a salaried personal loan is a pre determining factor an individual is classified broadly as per the following inputs:
The Net Income Of The Applicant
The monthly income of the applicant plays a major role for the rate of interest applied for salaried individuals points to be noted are:
The Rate of Interest is applied as per the income slabs of the lender.
Discounted interest rate is offered to high income individuals.
The Current Employment
Banks and NBFC ‘S issuing Personal Loans to salaried individuals has devised a list of companies which are categorized as per turnover, profile and performance. Applicants employed with these organizations are offered interest rates as per the company category. For example, an applicant working in the company listed as category A will be lent funds at a lower rate than a company listed under category C or D. The Economic times' Top listed companies are priority companies for all Banks/NBFC’S, the employees of these companies are given special discounted rates.
High-Income Individual Seeking Increased Loan Amounts
Customers with a salary of ₹ 75 k+ seeking a Personal Loan amount of ₹ 10 lakhs and above are offered the best in class interest rates the applicant must be eligible for the loan amount as per the terms of the Bank for the special rate to be applied.
Association With The Lender
Applicants holding a salary account with the bank are entitled to a lower interest rate. With an existing salary account the Bank can monitor the monthly income, transactions and have a window to credit management capabilities of the customer.
Festive Discounts And Special Offers
A Personal Loan is forwarded for all types of personal needs, in an emergency or when short of funds for family requirements. Banks and NBFC’s reduce interest rates during the festive season for easy availability of funds to facilitate celebrations. Special offers are forwarded from time to time to increase sales in performing sectors, companies with profitable projections, employees of Government and Public sector undertakings.
Existing Personal Loan Holders
Having a previous history or a relationship with Lender proves an added advantage. To retain a good customer who has judiciously used the services of the Bank, a special discount on the rate of interest for a personal loan can be offered.
Individuals currently holding a Personal Loan can apply for an additional sum as a ‘Top Up’ with the parent bank. A ‘Top Up’ is granted at a lowered rate of interest to eligible customers maintaining an on time payment record.
External Banks offer personal loan holders a special rate of interest for a ‘Balance transfer’ of the principal balance of the existing loan. The condition is that the customer has an on-time repayment track.
Discounted Rates For Special Categories
A stable and steady employment with a secured future is the prerequisites required for an ideal Personal loan applicant. Therefore applicants with the following credentials are given a special Rate of Interest.
Central and State government employees
Doctors and Dentists holding a degree of MBBS and above
Officers of the Army, Navy, Air force and Paramilitary force
Professionals such as Teachers, Chartered Accountants and Degree holders from Top institutions
Does The CIBIL Score Affect The Rate Of Interest Issued?
The CIBIL score of an individual does not directly govern the rate of interest offered for a Personal Loan but is a major influencer as per the following:
A Personal Loan Is An Unsecured Lending Platform Therefore The Credit Behaviour Of An Individual Is Important To The Lender If An Applicant’s CIBIL Score Has Not Been Generated, Is Nil, Or -1 Banks Will Be Hesitant To Approve The Request.
Selected Banks/Nbfc’s Only Lend To An Applicant With A CIBIL History. Major Banks Forwarding Personal Loans At The Lowest Rate Of Interest Will Only Process An Application If The CIBIL Of The Applicant Is Above The Required Benchmark.
Increased Loan Amounts Are Only Offered To Applicants With A Good CIBIL Score, Banks May Offer Conservative Loan Amounts Are Forwarded To First-Time Credit Seekers. Therefore It Is Necessary To Start Building Up A Credit Score At The Earliest.
How Is The Rate Of Interest For A Personal Loan Calculated?
The interest amount paid for a Personal Loan is the same whether calculated on a fixed rate or at a monthly reducing Rate of Interest. It is nothing but a sales gimmick being given an option for either a fixed or a reducing interest rate for your Personal Loan.
The Rate Of Interest For A Personal Loan Is Calculated At A Reducing Monthly Balance
Which means that interest will only be charged on the principal balance. Each monthly EMI recovered comprises of an interest and principal component, the next EMI will be calculated on the reduced principal amount.
The Rate Of Interest Is Applied At A Fixed Rate On A Yearly Basis
He interest rate for a Personal Loan is charged on a yearly basis, the minimum repayment tenure for a personal loan is 12 months and the maximum can extend up to 72 months. Therefore a personal loan issued for 12 months will cost less than for a longer tenure of 36 months.
The Table Below Clarifies The Following
The rate of interest applied @ monthly reducing rate on the principal balance.
The total interest paid is calculated @ yearly flat interest rate.
The EMI remains constant for the tenure applied.
| Loan Amount Issued |
₹100000/- |
| Tenure |
12 months |
| ROI @ Reducing Balance |
13% |
| ROI @ Flat Rate |
7.18% |
| Month |
EMI |
Interest Quotient |
Principal Quotient |
Principal Outstanding |
| 1 |
8931.73 |
1083.33 |
7848.8 |
92159.61 |
| 2 |
8931.73 |
998.31 |
7933.42 |
84218.19 |
| 3 |
8931.73 |
912.36 |
8019.36 |
76198.82 |
| 4 |
8931.73 |
825.49 |
8016.24 |
68092.58 |
| 5 |
8931.73 |
737.67 |
8194.06 |
59898.53 |
| 6 |
8931.73 |
648.9 |
8282.83 |
51615.7 |
| 7 |
8931.73 |
559.17 |
8372.56 |
43243.14 |
| 8 |
8931.73 |
468.47 |
8463.26 |
34779.88 |
| 9 |
8931.73 |
376.78 |
8554.95 |
26224.94 |
| 10 |
8931.73 |
284.1 |
8647.62 |
17577.31 |
| 11 |
8931.73 |
190.42 |
8741.31 |
8836 |
| 12 |
8931.73 |
95.72 |
8836 |
0 |
| Total |
107180.76 |
7180.72 |
1,00,000 |
Nill |
The Cost Of The Personal Loan Varies As Per Repayment Tenure
It is to be noted that the time period for repayment of the
Personal Loan is fixed on a yearly basis for example a personal loan is granted for a period of 12, 24, 36, 48, 60 months not an interim period of say 18 months or 40 months. The rate of interest being fixed on a yearly basis, the longer the repayment tenure the greater will be the cost of the loan.
Depicted as per example below:
It is to be noted that the time period for repayment of the Personal Loan is fixed on a yearly basis for example a personal loan is granted for a period of 12, 24, 36, 48, 60 months not an interim period of say 18 months or 40 months. The Rate of Interest being fixed on a yearly basis, the longer the repayment tenure the greater will be the cost of the loan.
| Loan Amount |
₹ 2,00,000.00 |
₹ 2,00,000.00 |
| Repayment Tenure |
24 Months |
48 Months |
| ROI @ Monthly Reducing Balance |
13 % |
13 % |
| ROI Applicable Flat Per Year |
7.05 |
7.19 |
| Interest Amount Paid |
28200.75 |
57543.96 |
| Total Amount Repaid |
228200.75 |
257543.96 |
Comparison Table Of Personal Loan Charges From Various Banks
| Bank/NBFC |
Interest Rate |
Processing Fees |
Max. Loan Amount |
Tenure |
|
HDFC Bank
|
10.25% to 22% |
₹ 999/- 2.50% |
₹50k to ₹40 lakhs |
1 to 6 years |
|
ICICI Bank
|
10.5% to 22% |
₹ 1500/- to 2.25% |
₹50k to ₹30 lakhs |
1 to 5 years |
|
AXIS Bank
|
10.49% to 20% |
₹ 4,999/- to 2% |
₹50k to ₹25 lakhs |
1 to 5 years |
|
Kotak
|
10.25% to 20% |
₹ 1999/- to 2.50% |
₹50k to ₹20 lakhs |
1 to 5 years |
|
IDFC Bank
|
11% – 24% |
Up to 3% |
₹50k to ₹25 lakhs |
1 to 5 years |
|
YES Bank
|
10.5% to 22% |
1499/- to 2.5% |
₹50k to ₹25 lakhs |
1 to 6 years |
|
TATA Capital
|
11.25% – 24% |
Up to 2.5% |
₹50k to ₹20 lakhs |
1 to 5 years |
|
Fullerton India
|
11.99% – 25% |
2% to 5% |
₹50k to ₹15 lakhs |
1 to 5 years |
|
IndusInd Bank
|
11% – 20% |
1% to 3.5% |
₹50k to ₹20 lakhs |
1 to 5 years |
|
Standard Chartered
|
11.5% – 20% |
1% to 2.25% |
₹50k to ₹40 lakhs |
1 to 5 years |
|
HDB Financial Services
|
13% – 24% |
Up to 3% |
₹50k to ₹15 lakhs |
1 to 4 years |
|
BAJAJ Finserv
|
12.99% – 22% |
1.5% to 2.75% |
₹50k to ₹20 lakhs |
1 to 5 years |
|
Aditya Birla
|
11.5% – 23% |
1.5% to 2.75% |
₹50k to ₹20 lakhs |
1 to 7 years |
Charges For A Personal Loan.
The
Rate of Interest being the major cost of funds for a Personal Loan, there are additional charges levied by Banks/ NBFC’S to recover administrative costs, these include:
Processing Fees
The processing fees or file charges levied for Personal Loan are usually a percentage of the loan amount forwarded from 0.5% to 3% as per the individual policy of the lender.
Discounts are offered to account holders, premier applicants eligible for increased loan amounts and employees of elite companies. Fixed processing fees are applied to special products such as a
Personal Loan Balance Transfer and
Top UpIt is to be noted that the processing fees are a onetime charge, always deducted from the loan amount and never taken upfront.
Foreclosure and Part Payment Charges
Personal loan holders wanting to pay back the complete or part of the loan amount borrowed, before the expiry of the tenure will have to adhere to the terms and conditions of the Bank/NBFC.
The number of EMI’S as per lock in period will have to be completed to facilitate a fore closure of the loan. Charges may also applicable on the principal balance as per the terms of the loan agreement. For repaying a part of the loan amount some Banks have no restrictions while others have limitations on the amount and the number of times a part payment can be made.
Other Charges
Loan Insurance if availed charges can be paid upfront or embedded in the EMI. Late payment fees and Documentation charges are levied as per the terms of the Loan agreement Taxes and GST are imposed as per current laws.
Do’s And Don’ts For A Personal Loan Interest Rate
When searching for the best rate of interest for a personal loan we advice the steps to take and what to avoid.
When requiring a Personal loan, check the rate of interest offered by leading Banks & NBFC’S
Not just the Bank with which you hold an account.
The rate of interest is an important cost factor of a Personal loan
But be aware of charges such as the processing fees, pre closure and part payment charges.
As Per The Rate of Interest and Tenure Applicable, Calculate The EMI To Be Paid
The EMI should be affordable so that there is no room for a delay or a default.
Go in For a Shorter Tenure if The EMI is Affordable
As the rate of interest applied on a yearly basis will make a difference to the cost.
Check the market for the best rate of interest available but do not apply to numerous lenders
As this will affect your credit score and make lenders apprehensive with the multiple enquiries reflecting in the CIBIL record.
FAQ’S
What is The Average Rate of Interest For a Personal Loan?
Banks & NBFC’S constantly review Rate of Interest offers as per market conditions the rate of interest charged for a Personal Loan is between at an average 10.25% to 22%.
Which Bank Charges The Lowest Rate of Interest For a Personal Loan?
Leading Banks which offer the lowest Rate of Interest for a Personal Loan are HDFC Bank, Axis Bank, ICICI Bank and Kotak Bank.
Will The Rate of Interest Offered To an Individual For a Personal Loan Differ From One Bank To Another?
The interest rate applied to an applicant can differ from one Bank to another lenders have their own policy according to which the interest rate is offered.
Is it Possible To Get a Lower Rate of Interest For a Pre Existing Loan?
The rate of interest for a Personal Loan remains fixed for the entire tenure and cannot be altered. The only way to reduce the rate of interest for a running loan is via a balance transfer.
How Does The Fluctuation of the Repo Rate Affect The Rate of Interest For a Personal Loan?
The changes in the Repo rate do not directly affect the rate of interest offered for a Personal Loan, but the Banks will review their cost of funds and alter the interest rates accordingly.
To Which Applicants is The Lowest Rate of Interest Offered?
The lowest Rate of Interest is offered to high income applicant applying for a loan amount of ₹ 10 Lakhs or more.
Will The Rate of Interest For a Top Up or a Parallel Loan Be The Same as The Existing Loan?
If the applicants profile is the same or the income has increased currently the Rate of Interest for a Top Up will remain the same, whereas if the applicant has changed employment the Rate of Interest for a parallel loan will be applied as per the current income and company category.
Will an Applicant Get a Similar Rate of Interest for a Personal Loan From Major Banks/ NBFC’ S?
Banks & NBFC’S offer a rate of interest as per the cost of funds and individual policy, therefore an applicant can be offered varied interest rates from various lenders.
How Will The EMI For a Personal Loan Calculated?
The EMI for a Personal Loan is Calculated by adding the interest sum to the loan amount and dividing it into installments as per the applicable tenure. The only variable is that percentage of interest repaid at the start of the EMI is greater the proportion balances out at the middle of the tenure.
Will The EMI For a Personal Loan Change With a Lower Rate of Interest?
The cost of the loan will definitely come down with a lower interest rate but the EMI is also based on the tenure, if the tenure is extended it will decrease but will remain the same or increase if the applicant chooses a shorter tenure.
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