Financial literacy is still a challenge in India. People often end up paying high-interest rate owing to lack of awareness and knowledge. Here, we will help you know the best interest rate on a personal loan along with the other aspects. We would like you to have a glance on the video first –
Video Link (New Video Personal Loan Interest Rate)
How is personal loan beneficial?
Personal loans are unsecured loans that can be taken by both salaried as well as self-employed people to fulfill their financial needs or private expenses for emergency purposes. These loans do not offer any sort of security and can be availed easily without much documentation and heavy processing. Personal loan interest rates are comparatively higher than other types of loans such as home loans or car loans. There are many lenders that provide personal loans at competitive rates but you should only apply for a personal loan when:
- You need funds urgently.
- You lack collateral to get your secured loan approved.
- You do not have sufficient time to wait for your secured loan approval and going through detailed documentation process.
- You need a short term loan for a small duration of not more than five years.
And you can easily know how much you have to pay as an EMI for Personal Loan through Personal Loan Calculator.
What are the benefits of a personal loan?
- No need for collateral or security deposits as these loans are unsecured.
- Less processing time and fast approval. These are instant loans that can be taken for small tenures.
- Minimum documentation with easy approval based on some basic documents such as KYC, CIBIL score and income receipts.
What are the best personal loan interest rates available in the market?
As per the current personal loan interest rates, Yes Bank is offering the lowest interest rate of 10.75%. Getting low personal loan interest rate depends on the company you are working with, the amount of loan you are seeking and your repayment capacity based on your lifestyle. If you will take the higher loan amount, you will have to pay a lower personal loan interest rate. If you are looking for instant approval of your personal loan, then HDFC Bank, IIFL, Tata Capital, Citibank, RBL Bank, and ICICI Bank are some of the best banks that will lend you money within 1-2 days. The personal loan interest rates of these banks may vary and generally falls in the range of 10.99% to 16%.
You can get a personal loan from these banks online and can check the eligibility of your loan approval without any paperwork. Make use of Afinoz personal loan calculator. If everything goes well, your personal loan will get approved instantly, and you will get the loan amount in your bank account, if you are already an existing customer to the following banks HDFC Bank, IIFL, Tata Capital, RBL Bank, ICICI Bank, Citibank. In some other cases, banks may ask you to upload a few basic documents on their mobile app or submit them to a bank loan officer who will then visit you at your place and lends you money in person. The more documents you have, the low the interest rate.
Comparison of Personal Loan Interest Rates
You should make a checklist and make a detailed comparison of personal loan interest rates of different banks to get the best deal before applying for a personal loan.
- Interest rates for personal loans: Some banks often launch attractive schemes on personal loans with low-interest rates, especially for those who work in MNC’s or big reputed companies. The personal loan interest rate depends on your company’s listing in the bank’s internal categories which varies from bank to bank. Hence, it is advisable to always check with multiple banks before applying for a personal loan to get the best offers and the cheapest interest rates. Personal loan calculator helps you easily crunch the numbers.
- Personal loan processing fees – Most banks charge a certain amount of processing fees on personal loans. Since these are short term loans, high processing fees can lead to high cost of loans. Generally, the fees that banks charge are Rs. 999 to up to 2% of the total loan amount. It is essential to know the All Inclusive Rates (AIRs) for personal loans to compare and choose the top offer.
- Insurance policy premium – Unsecured loans are subject to risks, therefore, banks often want the borrower to take an insurance policy when availing a personal loan. The amount of premium varies from bank to bank based on the risk coverage and the policy taken. So, it is essential to check the loan sanction letter vigilantly before taking an insurance policy to know the coverage and premium. Also, it is good to compare various insurance policies available from different lenders to choose a policy which offers you ample coverage at the lowest premium.
- Personal loan prepayment and foreclosure – Sometimes you may want to repay a certain loan amount before the tenure ends as nobody likes to keep paying interest if they have sufficient money available to repay it. This part repayment is called prepayment and in case you want to settle the full loan amount before the tenure, it is called foreclosure. Banks charge a certain amount of prepayment or foreclosure charges on personal loans that can range from nil to up to 5%. So, it is one more check you need to perform while applying for personal loans so that you don’t end up paying high prepayment or foreclosure charges to crack low-interest rate deals.
Here you check your Personal Loan EMI
Guide on Personal Loans
- Purpose: Personal loans can be taken to meet any financial needs that include a vacation or travel, wedding ceremony, higher education, medical treatment, credit card payment etc. The borrower needs to specify the purpose of the loan while applying for it.
- Major Features:
Age of the borrower: Age group of 21 and 60 years
Loan Tenure: Can be taken from 12 to 60 months.
Loan Amount: Can apply for Rs. 50,000 to Rs. 50 Lakh.
Interest rates: Personal Loan Interest Rates starts from 10.75%.
Work Experience: Up to 3 years of total work experience.
Personal Loan EMI: Minimum EMI of Rs. 2,162 per lakh (Refer Personal Loan Calculator)
Processing Fees: Up to 2% of loan amount (varies from bank to bank).
Documents obligatory: Address Proof, Identity Proof, and Income Documents.
Special offers: Banks presents special offers on personal loan interest rates for salaried borrowers working in government jobs, defense sector, private or MNC companies. Banks also grants a personal loan to self-employed professionals like Doctors, CS, CA, civil engineers, etc. Few leading banks have also launched special schemes to pensioners up to an age of 76 years.
How to Easily Qualify For Low Personal Loan Interest Rate?
As these loans are unsecured, banks have a set of rules that are pre-decided and grants personal loans only when the borrower meets those rules. Many personal loan applications get rejected failing to fulfill those rules. Here are some tips that can improve the chances of personal loan approval for the borrower
Know your credit score- Always keep an eye on your credit score especially before applying for the loan. You can get your credit history from credit bureaus such as CIBIL, Experian, Equifax and CRIF within 24 hours of applying. Low credit score may reduce your chances of getting a loan while a high score not only increases the chances of getting personal loan approval but also helps in fetching low-interest rates for borrowers. It is, therefore, necessary to have a credit score above 750 to get the loan application approved.
Identify options in case of credit scores- In case your credit score is not good and is less than 750, then you might need to wait for a few months and work towards improving your credit score. If that is not a valid option for you, then you should look for banks that provide loan for a lower credit score at high-interest rates. There is an option to take gold loan or loan against fixed deposits if you are in dire need of money as they do not consider your past credit score
Make the right choice after comparing All Inclusive Rates (AIR)- You should vigilantly compare the interest rates, eligibility criteria and AIR from different banks. Select the right bank after comparing interest rates as well as other factors such as tenure, foreclosure charges, and other hidden charges before making the decision. Online market places can provide you a rapid and thorough comparison of key loan offers to assist your decision-making process.
Provide accurate details– Being honest with the bank by providing accurate details can make the process easy and convenient for both the lenders and the borrowers. Lenders verify information provided by you and if they feel any misleading or mismatching information, they may reject your loan application.
Avoid multiple loan applications- Sometimes, borrowers apply for a personal loan with multiple banks to crack with at least one but this can negatively impact their credit score and the chances of application rejection become multifold.
Try to maintain a gap between two personal loan applications– At least 6 months gap is required to apply for a new personal loan as most of the banks do not grant it if the gap is lesser than 6 months.
Maintain job stability– Switching from one job to another very frequently can reduce your chances of getting a personal loan as most of the banks require a minimum of two years of work experience in a particular job.
Evaluate your repayment capacity- Before applying for a personal loan, evaluate whether you will be able to repay that loan amount along with interest in future or not. You can make use of online loan eligibility calculators to get a fair idea of your earnings and EMI’s. If you are applying for a loan amount higher than chances are there that your application gets rejected.
Maintain a disciplined CIBIL score- Practice a healthy credit discipline schedule to maintain a good credit score and improve the chances of getting a personal loan quickly. This schedule includes paying personal loan EMIs on time as every overdue payment reduces your credit score, limiting the number of credit cards; resist taking too many secured loans and time checking your credit score.
Personal Loan Interest Rate Calculator
There are basically two methods used to calculate personal loan interest rates based on factors such as loan amount and loan tenure. One is a flat rate method in which your loan EMI will be higher and another is reducing balance method in which EMI is comparatively lower
Flat interest rate: In this, the interest rate is calculated on the principal amount for the entire loan tenure. For instance, if you go for a loan of Rs. 5 lakhs at the rate of 12.50% flat interest rate for 3 years, the EMI charged will be Rs. 19,097. The total interest you need to pay per year will be 500,000* (12.50/100) = Rs 62,500. Therefore, total interest in 3 years will cost you Rs 62,500 * 3 = Rs 1.87 Lacs.
Reducing balance method: According to this, the interest rate is charged only on the outstanding loan amount and not on the principal loan amount. Generally, the interest rate is higher in this case as compared to the flat rate but eventually, it may turn out to be less costly as the interest is paid only on the outstanding amount. For instance, if you go for a personal loan of Rs. 5 lakhs at 12.50% rate of interest for a period of 3 years, the EMI will be Rs. 16,727.
Do’s and don’ts to get the lowest personal loan interest rates.
- Check for discounts and best offers available for salaried customers – Always remain updated with current offers and personal loan interest rates offered to employees working in large reputed companies
- Compare personal loan interest rates based on loan amount –Majority of banks offer low-interest rate if the loan amount is high
- Check for a discount based on loan tenure– Sometimes banks may offer lower interest rates on a personal loan for a specific tenure. Go for tenures that come with lower interest rates.
- Do not apply for loan amount more than your eligibility – Applying for a loan amount higher than what you are eligible for, may lead to rejection of your application. Know your eligibility and your credit score beforehand.
- Do not apply with multiple banks at the same time for personal loans – Simultaneous loan applications with multiple banks gets recorded in your CIBIL report and can negatively impact your chances of getting a loan
- The bank having your salary account may not offer you the cheapest personal loan – Different banks offers different schemes to get hold of premium customers. Hence, check with multiple banks to get the best interest rates on the personal loan.
Frequently asked questions about personal loans
Why do I need a Personal loan?
Personal loans are taken to meet financial liabilities or to fulfill short term needs. Majorly these are taken to pay off outstanding credit card debts, for a daughter’s wedding, any medical emergency, planning a family vacation etc. So basically you can use personal loans for any purpose but should only take them when in dire need of money as the interest rates on these loans are generally higher than any other type of loan. Also, be very much sure that you can make repayments on time otherwise it can badly affect your CIBIL score which might reduce your chances of getting secured loans in the future.
Which bank is best for a personal loan?
IndusInd Bank, Citibank, Standard Chartered Bank, Yes Bank are some of the best banks for taking a personal loan as they offer an interest rate on personal loans in the range of 10.75% to 11% which is minimum as compared to other banks. Yes, Bank offers the lowest interest rate of 10.75% while most of the banks provide personal loans at an average interest rate of approx 11 to 13%. The highest interest rate on personal loans is 17.25% provided by Fullerton India.
How can I apply for a personal loan?
Personal loans can be applied in several ways. You can straight away visit the bank branch from which you are seeking a loan and meet the salesperson assigned for this task, contact a loan agent who will help you in getting the best deal at lowest interest rates, or apply online at any bank website or NBFC’s website. You can also opt for a personal loan from private lenders to catch the best loan offers.
What are the minimum and maximum time duration of a personal loan?
These loans are short term loans taken for small durations. Generally, the loan tenure ranges between 12 months to 60 months with easy EMI options.
What other charges are applicable on personal loans?
Along with the rate of interest, banks charge these two types of fees on personal loans.
Processing fee: The processing fees that are generally charged can range between 2 – 3% of the total loan amount and it is negotiable if you request the bank or if you have perfect good credit score. There are certain online dealers that can help you in fetching the best personal loan deals with minimum processing fees and great offers. Sometimes banks do not charge any processing fees from their priority customers.
Pre-closure fee: This fee is levied by the bank when you decide to close your loan before the loan tenure. Banks enforce this penalty to recover the loss they bear due to the premature closing of a fixed rate loan. This prepayment penalty of loan can range up to 5% of the total loan amount. You should thoroughly read the terms and conditions of loan agreement before applying for it to ensure that it is not too stringent as compared to market standards. Pre-closure fees can also be negotiated if discussed with bank personals.
What is the good CIBIL score for a personal loan?
A score of 750 and above is taken as a good score to get a personal loan. CIBIL score ranges from 300 to 900. Higher credit score means higher chances of loan approval and vice versa.
Is it necessary to have a bank account to get a personal loan?
Yes, you must have at least one bank account in your name if you are applying for a personal loan. It is good if you have a bank account with the same bank from which you want to get a loan.
Is it possible to apply for a personal loan jointly with my spouse?
Yes, personal loans can be applied jointly with a co-applicant that can either be your spouse or your parents. This way you become eligible to apply for even a higher amount as your co-applicants income also gets added up for taking into consideration by banks. They become doubly sure that you will be able to repay your loan; hence it becomes easy to get a personal loan.
Does it impact my co-applicants CIBIL score, if I default in a personal loan?
Yes, if you are unable to repay the loan on time, then it will negatively impact your co-applicant CIBIL rating as well.
What are the major factors that affect the interest rate of personal loans?
These loans have a high-interest rate as they are unsecured in nature. The interest rates of personal loans may vary depending on the loan amount, company you are working with and your net income. High salary and good company profile can let you borrow a high personal loan amount at low-interest rates. Personal loan interest rates for government employees and army personnel may be slightly different from that for employees working in the private sector.
Can I do a balance transfer on personal loan to other banks?
Yes, if you are getting a loan at a higher rate of interest and paying higher EMI as compared to other banks, then you can go for a personal loan balance transfer to reduce extra burden.
Can I get top up on an already granted personal loan?
Yes, you can get a certain amount of top-up loan on your existing personal loan. There are certain terms and conditions that are applicable and may vary from bank to bank.
How can I ensure that my personal loan application does not get rejected?
Banks or lenders give loan only to those borrowers about whom they are very sure that they are capable of repaying the loan. Here are some pointers that you should keep in mind if you don’t want your loan application to get rejected:
- If your spouse is also a salaried employee, you can add her as a co-applicant to obtain the trust of a bank.
- Clear your previous debts so that you don’t feel overburden of paying heavy EMI’s.
- It is good if you can balance transfer your existing loans to a new loan to reduce the rate of interest on loans.
- If your CIBIL score is poor, you can try to get loans from other channels where the credit score history is not mandatory. You can get such unsecured loans from some lenders with the high-interest rate.
Is it possible to pay loan EMI’s when I am not in India?
Yes, it is possible to make payments even when you are not in the country via net-banking or online banking. Every bank has its website for payments.
Is there any provision to avail a personal loan for pensioners?
There are several banks which offer a personal loan to pensioners at relatively less interest rate. Personal loan of up to 10-20 times of monthly pension can be taken.
What are the benefits of partly prepaying the loan amount?
Part prepayment is good if you have surplus income and you want to utilize it towards repaying your loan thus reducing your burden of fixed expenses. You will have to pay less EMI’s and the loan tenure will also come down as the rate of interest will decrease after part prepayment of your loan. Banks do not encourage prepayment or foreclosure after few days of sanctioning a loan. You can only prepay or foreclose your loan after a few months and that too along with a penalty of 2-5% on the principal amount. It is therefore essential to calculate the financial implications of prepayment, before applying for a personal loan or before making a decision to repay it.
Is it possible to get a personal loan with bad credit score?
Yes, some lenders may grant you a personal loan at high-interest rates. If you apply for a loan along with a co-signer with a good credit score, then there are chances that you get it from many banks at standard rates.
What are the tax benefits available on personal loans?
There are no explicit tax benefits but you may sometimes get exempted based on your need for which you want a personal loan. If you apply a loan for home renovations or to make a down payment of your new house, you may get income tax benefits under Section 24 of the Income Tax Act. This tax benefit will be applicable only on the interest of loan and not on the principal amount. You can also reduce tax liabilities in case you are taking a personal loan to fulfill business expenses as you can claim the interest paid against your taxable income. Indian Income Tax Act also allows tax deduction and exemptions on interest amount and principal repayment amount for an education loan or a home loan but not on personal loans.
Points to note concerning tax benefit on the personal loan
- Personal loans are not taxable as the amount received on these loans is not considered as an income.
- To claim a tax deduction on the interest of the personal loan, adequate proof needs to be submitted to income tax authorities either in the form of a bank certificate or auditor’s certificate.
- To claim tax benefit on a personal loan, all essential documents such as sanction letter, auditor’s report, expense vouchers, and bank certificate should be readily available as you might need to submit them for assessment.
What is the eligibility of getting a personal loan for salaried employees?
Various factors determine the loan eligibility for a salaried employee –
Age: minimum age should be 21 years, and maximum should be 65 years which may vary from bank to bank)
Salary: minimum of Rs 25,000 per month
Total working experience: at least 3 years
Why is income a determining factor for personal loan eligibility?
You should at least earn Rs. 25,000 to be eligible for getting a personal loan. Although, some banks give loans to employees with salary less than Rs. 25,000, but they are very few. Banks also follow a formula to calculate the ratio of your financial liabilities to your monthly income. Suppose, your income is Rs. 30,000, then according to the eligibility calculator, your monthly EMI’s should not exceed 50% of your income. If your income is above Rs. 40,000 per month, then banks will allow fixed obligations to income ratio of 65%, which means your fixed expenses can be up to 65% of your income to be eligible for a personal loan from a bank. Higher income means higher chances of personal loan approval.
What are the benefits of online personal loan calculator?
Calculating your monthly loan EMI has several benefits over the traditional method of calculating EMI. Here is the list of few:
Saves time: Online EMI calculator saves a lot of time in doing tedious mathematical calculations as the output gets immediately generated as you enter your basic personal details needed to fetch the result
Accuracy: There is no doubt of miscalculations when using an online calculator as it gives accurate results. Wrong calculations may deliver wrong results which can alter your EMI for a personal loan which can ultimately affect your decision while taking a personal loan. Therefore, it is advisable to use online EMI calculator to fetch accurate results.
Financial Planning: Online personal loan calculator can guide you about the EMI’s you need to pay during the loan tenure to get a fair idea of whether you can repay that amount or not. You should only take a loan of the amount that does not affect your budget, financial balance as well as your CIBIL score in case you make any defaults in loan repayments while paying EMIs.
Evaluation of multiple schedules: online EMI calculator allows you to outlook the amortization schedules and EMIs for a variety of combinations of loan tenures along with interest rates, consequently enabling you to opt for the EMIs that suit your repayment capabilities.