Personal Loan Interest Rates 2024: Starting @10.49%

Banks and non-banking financial companies (NBFCs) usually calculate the interest rates for their loan applicants on the basis of the following factors:

• Lender’s cost of funds
• Net interest margins for the lender
• Credit scores, monthly income, occupation profile, and other aspects of their personal loan applicant’s credit profile
• Applicant’s existing deposit or lending relationship with the lender

5 Best Ways to Get a Low Interest Personal Loan

Below are a few important points that must be considered to get a personal loan at a low interest rate:

1. Build and maintain your credit score of 750 or above
2. Check for pre-approved instant personal loan offers from banks and NBFCs
3. Enquire with banks/NBFCs with whom you already have the deposit and/or loan accounts
4. Keep track of interest rate concessions offered by lenders during festive seasons
5. Visit online financial marketplaces to check and compare personal loan offers from various lenders

Factors Affecting Personal Loan Interest Rates

• Lenders fix personal loan interest rates primarily based on their cost of funds and the credit risk evaluation of their loan applicants. Here are some of the key factors that can influence your personal loan interest rates:
• Credit Score: Many lenders have started factoring in the credit scores of their loan applicants while setting their interest rates. Those having higher credit scores are offered personal loans at lower interest rates than others. Hence, try to maintain credit scores of 750 and above. Good financial habits like repaying your credit card bills and EMIs by their due dates, and avoiding multiple loans or credit card applications within a short period would help you maintain higher credit scores.

• Income: A higher income indicates a higher capacity to repay the loan. This leads to lower credit risk for the lender. Thus, many lenders offer lower personal loan interest rates to those having a higher income.

• Employer: Many lenders consider the employer profile of their loan applicants while setting their interest rates. Salaried individuals are usually charged lower interest rates than self-employed ones due to the former’s higher income certainty.Among salaried applicants, government and PSUs are usually offered lower interest rates due to their higher job security and income certainty. Then, comes the personal loan applicants employed with MNCs and reputed private sector organizations as such companies are usually considered to have higher chances of withstanding economic downturns than other private sector organizations.

• Existing lending or banking relationship with the lender: Many lenders offer personal loans at concessional interest rates to applicants having existing banking or lending with the lender. Hence, those planning to avail personal loans should always contact the banks/NBFCs with whom they already have an existing lending or banking relationship for personal loan offers.

Balance Transfer Reduce Your Personal Loan Interest Burden

Applying for a personal loan balance transfer is similar to applying for a fresh personal loan. Your prospective lender will assess your credit profile before approving it and accordingly set your interest rate.

Thus, if there has been a significant improvement in your credit profile after availing the original personal loan and/or your current credit profile suits the risk assessment policies of the new lender, opting for a personal loan balance transfer may allow you to avail a personal loan at a lower interest rate and thereby, reduce your debt burden.

The personal loan interest rates also depend on the cost of funds, margin, and other financials/market-based parameters of the lenders. Lenders having a lower cost of funds or other interest rate determinants are more likely to offer personal loans at lower interest rates on exercising balance transfer.

How does a Bank Calculate Interest on a Personal Loan?

Banks and NBFCs use the reducing balance method to calculate the interest on personal loans. Under this method, the interest amount is calculated on the outstanding principal after every EMI payment.

The interest component in a personal loan EMI is highest in the initial period of the loan repayment cycle. However, as the unpaid principal amount reduces with the payment of every EMI, the interest component within the EMI also decreases.

Methods to Calculate Interest Rates on Personal Loans

The method of interest calculation under each of these methods is as follows:

• Annual reducing balance method: Under this method, the interest is calculated on the outstanding principal amount at the end of every year.
• Monthly reducing balance method: The lender calculates the interest on the total outstanding principal amount at the end of every month. As and when the borrower makes the EMI payment, the lender reduces the EMI from the total outstanding amount and calculates the interest on the reduced outstanding principal amount.
• Daily reducing balance method: Lenders using this method calculate the interest amount daily, which implies that the interest is levied on the outstanding principal balance for each day.
• Most lenders use the monthly reducing balance method for the interest calculation of their loans.

Is 12% a Good Interest Rate on a Personal Loan?

Whether 12% p.a. is a good interest for a personal loan scheme would depend on the credit profile of the loan applicants. As personal loans interest rates start from 10.49% p.a., with some public sector banks offering lower rates, an individual having a good credit profile may easily qualify for personal loan at 10.5-11% interest rates. Thus, instead of creating any particular number as the benchmark, prospective applicants should visit online financial marketplaces to compare the personal loan interest offered by lenders.

Why do banks offer different interest rates on personal loan?

Banks and NBFCs set personal loan interest rates primarily based on their cost of funds and the credit risk evaluation of their applicants. Lenders take into account several factors including credit scores, income, occupation profile, existing debt obligations, existing lending or banking relationship, employer’s profile of their personal loan applicants when determining their interest rates.

For example, as higher credit scores indicate lower credit risk, many lenders offer lower interest rates to personal loan applicants having higher credit scores. Similarly, lenders may offer personal loans at lower interest rates to those having stable occupation profile or working with government or top private sector employers as such applicants carry lower credit risk for the applicants.

What is the EMI for a Rs 5 Lakh Personal Loan?

The EMI of a Rs 5 lakh personal loan would depend on the interest rates offered by the lender and the chosen tenure. You can use the personal loan EMI calculator to know the EMI and interest payout on Rs 5 Lakh personal loans for different combinations of interest rates and loan tenures.

FAQs on Personal Loan Interest Rate

Which Bank has the Lowest Interest Rate on Personal Loan?

Among leading private sector banks, Axis Bank, IDFC First Bank, and IndusInd Bank offer the lowest interest rates on personal loans starting at 10.49% p.a., closely followed by HDFC Bank offering personal loans at 10.50% p.a. onwards. Some public sector banks might offer lower interest rates. However, the final interest rate offered will depend on credit score, monthly income, occupation profile, etc.

What is the Interest Rate on a Personal Loan?

The interest rates offered on personal loans vary from one lender to another. However, most private sector lenders offer personal loans at interest rates of 10.49% p.a. onwards, while some public sector banks levy lower rates on their personal loan schemes.

What is a Good Interest Rate on a Personal Loan?

There is no such thing as good personal loan interest rates. Lenders consider their cost of funds, net interest margins, and the credit risk assessment of their loan applicants while setting their interest rates.

Those with higher credit scores are likely to fetch lower interest rates on personal loan schemes. Therefore, loan applicants with higher credit scores should check and compare interest rates offered by multiple lenders to know the best offers available on their credit profiles.

What is the Current Interest Rate for HDFC Personal Loan?

The current interest rate offered by HDFC Bank on its personal loan scheme starts from 10.50% p.a. However, the final rates set by HDFC Bank for their personal loan applicants depend on several factors including their income, credit scores and other aspects of their profile, loan amount, tenure, etc.

What is the Average Interest Rate on a Personal Loan?

The interest rates offered on personal loans by most lenders usually range between 10.49% to 26% p.a., with some public sector banks offering lower rates. However, the average personal loan interest rates depend on the applicant’s credit score, income, etc.

How to Reduce Personal Loan Interest Burden?

Existing personal loan borrowers can reduce their interest burden by transferring their outstanding loan amount to another lender by offering them lower interest rates and/or better personal loan terms. Reduced interest rates will lead to reduction in both EMIs and overall interest costs.

Personal loan borrowers can also reduce their interest burden by making part prepayments whenever feasible. Those opting for part prepayment on their personal loans can either reduce their loan tenure or EMI. Personal loan borrowers seeking to reduce their interest burden further should opt for tenure reduction as it results in interest cost savings.

Can Personal Loan borrowers claim Tax Benefits on the interest amount?

The interest amount payable on personal loans for home renovation/repair is eligible for tax deduction under Section 24(b) of the Income Tax Act. You can claim deductions of up to Rs 30,000 per year on the interest amount paid on your personal loan.

How Can I Check the Total Interest Payout for my Personal Loan?

You can check your monthly EMI and total interest payout using the personal loan EMI calculator. All you need to provide are the loan principal, the interest rate and the loan tenure to get instant results.

What is Reducing Rate of Interest in Personal Loan?

Reducing interest rate is a method in which interest rate is calculated on the outstanding loan amount every month. The EMI includes the interest payable on the outstanding loan amount.

What is the Difference between Floating and Fixed Interest Rates?

In the case of fixed-interest rate loans, the rate remains unchanged over the entire tenure of the personal loan. In the case of floating rate loans, the rate can change periodically due to changes in market interest rates. Currently, most personal loans are offered at fixed rates as most loans have a relatively short tenure of up to 5 years.

Can I get a Personal Loan at a Low Rate of Interest Despite having a Low CIBIL Score?

Personal loan applicants having a credit score of­ 750 and above reflect good credit behavior and financial discipline. Therefore, such applicants have a higher probability of getting their personal loan applications approved.

Conversely, applicants with credit scores below 750 have lower chances of getting a personal loan. However, some NBFCs and fintech lenders offer loans to individuals with low credit scores. Personal loan interest rates offered by such lenders are usually higher than those offered by large banks and NBFCs.

Can a Government Employee Get Special Interest Rates on Personal Loan?

Many leading banks in India offer special personal loan interest rates to government employees due to the higher job stability typically associated with those in government service as compared to private sector employees. Such employees should first approach the banks with whom they maintain their salary accounts or other deposits because many personal loan lenders offer lower interest rates to their existing customers.