Personal Loan Interest Rates In April 2024

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.

Personal Loan Interest Rates of Public Sector Banks

The interest rates on personal loans are accurate as of Mar. 5, 2024.

Personal Loan Interest Rates of Private Sector Banks

The interest rates on personal loans are accurate as of Mar. 5, 2024.

How do Personal Loan Interest Rates 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 Affect Personal Loan Interest Rates

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 Rate of Interest?

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 Rate?

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 2024
How To Choose The Right Personal Loan In 2024
Best Marriage Loan For 2024

Frequently Asked Questions (FAQs)