Personal Loan Interest Rate: Current Interest Rate In 2022

Personal Loan Interest Rate: A personal loan is a financial product that you can get for yourself. For various financial needs, you can apply for a personal loan. In India, several banks provide the best personal loans to their clients, and you can easily apply for one online or offline.

But before you apply for a personal loan, you should compare the interest rates offered by various institutions, ranging from 7.90 % per year to 49 percent per year.

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Personal Loan Interest Rate

The amount you must pay back as Equated Monthly Instalments (EMIs) on a personal loan depends on the interest rate. The interest rates on personal loans can change. Additionally, the rates can differ for each borrower based on your CIBIL score, income, ability to repay the loan, the amount borrowed, the duration of the loan, employer’s reputation, the condition of your employment, your financial history, your debt-to-income ratio, and other personal loan eligibility requirements.

The smaller the EMI you must pay, the more attractive the interest rates are.

What Is  A Personal Loan?

Personal loans are a typical unsecured kind of loan for solving urgent needs. Due to its effectiveness may be utilized for many different things, including weddings, house renovations, vacations, and more.

Furthermore, the amount borrowed is unrestricted and may be used for any purpose. Comparing personal loans to other forms of borrowing, you can improve your credit more quickly. This is owing to the risk that its unprotected nature entails. A personal loan can help you through any short-term monetary emergency.

what is a personal loan

What Is The Current Interest Rate For Personal Loans?

Depending on how you meet the financial institution’s eligibility standards for a personal loan, personal loan interest rates can commonly range from 10.50% to 24%. However, the current interest rates on personal loans are low because of the pandemic’s economic downturn. Let’s examine why.

The Reserve Bank of India (RBI) cut the repo rate by 40 basis points, keeping it at 4%, in response to the national financial crisis. The speed at which the central bank loans money to banks and NBFCs is represented by the repo rate in this instance. Every time the RBI lowers the repo rate, the cost of borrowing for financial institutions decreases, which results in reduced personal loan rates for borrowers.

Check this also: Paysense Personal Loan

Why is Personal Loan Interest Rates So Important?

Because they impact the overall cost of the loan, personal loan interest rates are an essential issue.

Principal and interest are the two parts of each loan EMI. Your total amount due will go up if your total amount of interest is significant.

The personal loan EMI you must pay to repay your principal throughout the selected loan term is determined by the current individual loan rates. In this case, a a lower interest rate personal loan ROI will lower your overall interest payout and need fewer EMI payments to the lender during the loan term.

Personal Loan Current Interest Rate And Processing Fee

BankInterest RateProcessing Fee
HDFC Bank10.5% p.a. – 21.00% p.a.Up to 2.50%
Yes Bank10.99% p.a. onwards – 16.99% p.a.Based on the bank’s decision 2.50 % or more
Kotak Mahindra Bank10.25% and aboveUp to 2.5%
Indusind Bank10.49% p.a. – 31.50% p.a.3% onwards
Bank Of Baroda10.50% p.a. – 12.50% p.a.Up to 2%
IDFC Bank10.49% p.a. onwardsUp to 3.5%

How To Get The Lowest Personal Loan Interest Rate?

Here are some suggestions to help you obtain the lowest interest rate when applying for a personal loan:

  • Increase Your Credit Score: You are more creditworthy if your score is high. Banks and other financial institutions give applicants with good credit the lowest personal loan interest rates. So, before requesting a personal loan, you should check your credit rating. You should look for techniques to raise your credit score below 750. If your credit score is over 750, you have a better chance of receiving a personal loan with a low-interest rate.
  • Avoid Missing Repayments: Your credit score may suffer if you fail to make a loan or credit card repayment. Before setting the interest rates on personal loans, lenders typically consider your repayment history. A lower interest rate will probably be assessed for those who have made on-time EMI and credit card payments.
  • Keep an Eye Out for Offers: During celebratory times, banks and other financial institutions frequently provide exceptional interest rates for a constrained time window. While such a promotion is active, you can be given a loan with a cheaper interest rate.
  • Compare Interest Rates: Before requesting a personal loan from a particular bank, it is essential to compare the interest rates different banks and NBFCs offer for personal loans. Thanks to this, you will be able to obtain a personal loan at a reasonable interest rate.
  • Negotiate with the Lender: If you have an excellent working relationship with the loan provider or are an existing bank customer, you can work out a deal for the lowest interest rate. It is advised to send the loan provider a formal, written request while doing this.

Note: The applicant’s credit score is one of the significant factors for banks and other financial organizations when determining the interest rate, among the other diverse variables stated before. To guarantee that you are given a favorable interest rate, check your credit score as soon as possible.

personal loan

Factors Affecting Personal Loan Factors Interest Rates

  • Income: When determining the interest rate for a loan, lenders consider the applicant’s income. High-earning people may have a reduced interest rate since they are a more negligible risk to the bank. Conversely, lesser yearly salaries might be required to pay a higher interest rate.
  • Employer Information: The bank or financial institution is more likely to give you a reduced interest rate if you work for a reputable company.
  • Employment Type: Loan providers may offer various interest rates to applicants depending on whether they are salaried employees or independent contractors.
  • Age: The borrower’s age may affect the interest rate the loan provider quotes. A greater interest rate might be applied to people getting close to retirement age.
  • Relationship with the Loan Provider: Current bank/financial institution clients who have a good relationship with the loan provider may be given a cheaper interest rate when applying for a personal loan. However, the Bank reserves the right to decide whether to provide a favorable interest rate to all current customers.
Check this also: Shriram Personal Loan

Personal Loan Interest Rate Types

On a personal loan, two different interest rate types apply:

  • Fixed-Rate of Interest: As the name implies, with a fixed rate of interest, both the interest rate and the EMI amount are set for the duration of the loan. Fixed rates are typically 1% to 2% higher than the fluctuating interest rate, but borrowers may still efficiently manage their budget for the long term.
  • Floating Rate of Interest: In a floating rate of interest, the interest rates fluctuate throughout the loan and are based on internal benchmarks used by the lending institutions. As a result, the loan term is altered, or the EMI for personal loans increases or decreases.

What does “Reducing Interest Rates” in Means to Personal Loans mean?

When you take out a personal loan with a fixed interest rate, the interest is computed throughout the loan repayment period on the whole the loan amount. In contrast, the interest on a loan that has a falling interest rate/dropping balance rate structure is only computed on the amount still owed.

Thus, in this instance, the interest for the remaining loan term will be calculated on the outstanding loan sum when you make a monthly repayment.

Personal Loan Eligibility Criteria

Most banks and NBFCs offer personal loans, although various eligibility criteria exist. However, all financial institutions must meet a particular set of standards. The following requirements must be complete for salaried and self-employed people to be approved for an online personal loan:

Age18/21 years – 60/65 years
Type Of Employment1. Salaried
2 Self-Employed Or Professionals
Credit Score750 or higher as well as a great credit history
Monthly Icome₹15,000(non-metro cities)
₹20,000( metro cities)
Loan AmountDepending on the credit history, up to 50 lacs
Work ExperienceSalariedEmployed
At current company for at least 6/12 months
Self-EmployedBusiness
Tenure of at least 3 years (continuous)
ITR of last 3 years

Documents Required For Personal Loan

Here are some of the most common documents that are needed for an online personal loan to be approved:

1:- For Salaried Person

  • Proof of your name and age
  • Personal loan application filled out with a photo.
  • PAN Card
  • Proof of residence: a passport, a driver’s license, a voter ID, a postpaid or landline phone bill, or a bill for electricity, water, or gas.
  • Statements from your bank for the last three months (preferably your salary account)
  •  Payslips from the last three months.
  • Form 16 or the last three years’ tax returns

2:- For Self Employed Person

  •  Proof of your name and age
  • Personal loan application filled out with a photo.
  • PAN Card
  • Proof of residence: a passport, a driver’s license, a voter ID, a postpaid or landline phone bill, or a bill for electricity, water, or gas.
  • Statements from your bank for the last three months (preferably your salary account)
  • Payslips from the last three months
  • Your last three years of tax returns with a breakdown of your income
  • Balance sheet and profit and loss statement from the last three years, certified or audited by a CA.

personal loan interest rate

Types Of Personal Loan

Here are the different kinds of loans you can get online:

1:- Personal Loan For Home Improvement

You can always do something to improve your home, and an instant personal loan can help you do it. A personal loan for home improvement can help you do anything from fixing up your kitchen to making it the perfect mix of comfort and durability.

2:- Personal Loan for a Wedding

In India, the average cost of a wedding is 25 lakhs. Using up all your savings on wedding costs is not a good idea. You can apply for an online personal loan and pay your bills here. Planning a wedding is now easy.

3:- Personal Loan for Traveling 

You can use a personal loan for more than just home repairs or a wedding. You can also use it to pay for travel. Since it is easy and cheap, it can be a choice. Also, it can help you save money on interest by letting you switch how you use your credit card.

4:- Fresh Funding

It can be hard to get the money you need for working capital, and your daily operations could suffer if you don’t get more money. A personal loan might be the best way to meet your short-term working capital needs, like paying bills, salaries, etc.

5:- Top Up Personal Loan

A personal top-up loan is a service that banks offer customers that lets them borrow more money on top of what they already have. A top-up loan has a slightly higher interest rate than a regular personal loan.

6:- Balance Transfer on a Personal Loan

Did you know that you can save money on your loan interest? Well, you can do that with a balance transfer. You can pay off your current loan with a new loan whose interest rate is lower. Please keep in mind that there is a fee for transferring a personal loan balance.

Check this also: BOB Personal Loan Interest Rate

Points To Consider For Personal Loan

When choosing a personal loan with a low-interest rate, you should also think about the following:

  • Processing Fee: Loan companies charge a one-time “processing fee,” making the loan more expensive. Even if the interest rate is low, you should compare the processing fees different lenders charge.
  • Pre-Closure Fees: Some banks may charge you a pre-closure fee if you pay off the rest of your loan before the end of the loan’s term. Check if the bank or other financial institution you want to work with charges a pre-closure fee.
  • Customer Service: If you want to borrow money in a good way, you need to apply to a lender with good customer service. Before sending in your loan application, you should look into the customer service options and how quickly the lender can help you when needed.
  • Eligibility Criteria: A bank or other financial institution may offer personal loans with low-interest rates, but you should ensure you meet the lender’s eligibility requirements. To do this, you should ensure that your income is above the set limit and that you are the right age.
  • Loan Disbursal Time: If you need a personal loan urgently, you should consider the loan disbursal time before applying. Several prestigious banks and financial organizations disburse the loan amount in a couple of seconds.
  • Other Fees: Even though the lender may charge you a slightly higher interest rate, if the processing fee, default fee, pre-payment fee, loan cancellation fee, check/EMI bounce fee, instrument return fee, stamp duty fee, duplicate statement issuance fee, swap fee, duplicate Amortization schedule issuance fee, etc. are low, you may be able to save on the total cost of the loan. Thus, before applying for a personal loan, compare the various fees assessed by the lender.
  • Discounts: You might try negotiating with the bank for the lowest interest rate even though the bank or financial institution may have specified a high-interest rate. Lenders frequently offer discounts to long-term clients and people who have maintained good relationships with them.
  • Special Offers: Some lenders may offer you a cheaper interest rate during holiday seasons.

Methods and Formula for Calculating Personal Loan Interest Rates

There are two methods for calculating interest on personal loans: flat rate and reducing balance. The declining balanced approach, which is a more transparent way of calculation and is advised by RBI, is used by all central Indian banks and NBFCs to compute the interest rate on personal loans.

According to the table below, an exciting outlay on a loan taken at a flat rate of 14 percent is 1.8 times that on a personal loan taken at a lower rate of 14 percent. A flat interest rate is always more expensive than a loan on reducing the balance at the same rate.

The following is the mathematical formula for calculating personal loan interest:

  • Flat Rate Method: The entire principal amount is used to compute interest. EMI = (Principal + Total Interest Payable) / Loan Tenor in Month, where Total Interest Payable = Principal x Interest Rate x Loan Tenure/100.

Reducing Balance Method: The outstanding principal amount is used to compute interest.

EMI = [P x R x (1+R) x N/[(1+R)^ (N-1)]

  • P= The principal amount.
  • R = Interest Rate
  • N= Loan term in months.

Some Other Fee And Charges For Personal Loan

1:- Bonus Charge

These are the fees charged in the event of an EMI bounce. In other words, these fees are assessed when you fail to make an EMI payment on a personal loan because you lack sufficient funds in your bank account. You’ll also need to pay the GST fees for each dishonored check or another payment instrument at Tata Capital.

2:- Annual Maintenance Fees for CCOD

CCOD The fees imposed on people who select a flexible funding option, such as Cash Credit or Overdraft, are known as annual maintenance fees. It is billed for keeping the Overdraft in good working order. The ceiling will be reduced by 0.25 percent at Tata Capital, coupled with the GST, or Rs. 1000, whichever is larger per year, and payment is due at the end of the 13th month.

3:- Statement of Accounts

Your Statement of Accounts, a bank statement that lists all transactions made from your bank account within a specified period, will be sent by lenders for a fee. At Tata Capital, a fee will only be assessed for a hard copy; a soft copy is provided without charge. You will be charged Rs. 250 + GST for branch walk-ins.

4:- Loan Cancellation Charges

The lender will charge a cancellation charge if you wish to cancel your loan following the loan disbursement process. Tata Capital levies 2% of the loan amount or Rs. 5,750, whichever is higher, and the GST charges.

5:- Card Swap Charges

After paying instrument swap fees, you can transfer your loan liability or cash flow for a new financial instrument. You would be charged Rs. 550 at Tata Capital plus GST.

6:- Schedule for Repayment in Doubles

A repayment or payback schedule, which is a table showing how your loan changes over time, will be provided by your lender. For whatever reason, you can apply for a fresh schedule that is available in both physical and digital copies if you require a duplicate. Although the soft copy is free, there will be a price for the hard copy.

7:- Duplicate NOC

Your lender will issue a new No Objection Certificate in your name after you pay a certain cost if you need to apply for a duplicate for any reason. 

How Prepayment Is Calculated?

Two methods are typically used to determine the prepayment fee:

  • As a proportion of the sum, you want to advance.
  • As a proportion of the outstanding principal balance at the time of prepayment.
  • You can be assessed a fixed fee for this facility by some lenders.

FAQ’S Regarding Peronal Loan

What is a Personal Loan?

personal loan interest rate

Depending on how you meet the financial institution’s eligibility standards for a personal loan, personal loan interest rates can commonly range from 10.50% to 24%. However, the current interest rates on personal loans are low because of the pandemic’s economic downturn. Let’s examine why.

What is a reasonable personal loan interest rate?

personal loan

What is a reasonable personal loan interest rate? Everyone’s definition of a favorable personal loan interest rate may vary. Any interest rate below that mark ought to be regarded as “excellent,” given that the typical borrower is qualified for loans with interest rates averaging between 10 and 28 percent.

What is the lowest personal loan interest rate that is offered?

personal loan

PNB offers personal loans starting at 7.90% p.a. at reasonable rates. The interest rate, however, may differ from one customer to the next depending on several variables, including the customer’s credit history and banking relationship, to mention a couple.

Can we lower the personal loan interest rate?

personal loan interest rate

Yes, there are several methods you can lower your loan EMI. The lower EMI amount will reduce your overall interest expense if you don’t lengthen the loan period to make larger payments.