No collateral requirement, minimal documentation, faster processing and disbursal make personal loans one of the most popular and widely used means to avail funds to meet various financial needs. However, the unsecured nature of personal loans makes it one of the most expensive forms of credit which makes it necessary to avail a good interest rate on your personal loan. Read on to find out what is a good interest rate on a personal loan, how can you secure it, factors affecting interest rates along with current interest rates of some popular banks and NBFCs in the country:
Personal Loan Interest Rates in India
At present, the interest rate charged on a personal loan by leading banks and NBFCs in the country ranges between 8.45% p.a. to 59.99% p.a.
A comparison of the personal loan interest rates of some leading banks and NBFCs in India is given below:
|Provider Name||Interest Rate (p.a.)|
|State Bank of India||9.60% onwards|
|Punjab National Bank||8.95% onwards|
|HDFC Bank||10.50% onwards|
|ICICI Bank||10.50% onwards|
|Bajaj Finserv||11.49% onwards|
|Axis Bank||11.00% onwards|
|Standard Chartered Bank||11.00% onwards|
|Kotak Mahindra Bank||10.50% onwards|
|Bank of Baroda||10.50% onwards|
*Interest rates as on 12th April 2021 and are subject to periodic change.
Factors Affecting Personal Loan Interest Rates
Personal loan interest rates vary from one lender to another. They also vary based on various application based factors some of which are discussed below:
- Credit Score: Credit score is a 3-digit number that ranges between 300 to 900 and is based on your financial health and repayment ability. A higher score indicates a higher creditworthiness and thus, a lower risk for the lender and can help you avail a lower rate of interest on your personal loan.
- Income and Repayment Capacity: Those with higher annual incomes and lower debt-to-income ratio may be offered a lower rate of interest on their personal loans. This is because it indicates a sufficient flow of income to pay the new loan EMIs and a lower risk of default for the lender.
- Employment Type and History: Working for a reputed private or government organisation and having a stable history of employment can help you avail a lower rate of interest on your personal loan as it indicates personal and financial stability and constant flow of funds to repay the loan.
- Loan Amount and Tenure: Generally, higher loan amount and longer repayment tenure come with higher rate of interest as they increase the risk for the lender and vice versa.
What is a Good Interest Rate on a Personal Loan and How Can You Secure It?
An interest rate which is lower than the national average is generally considered to be a good interest rate on a personal loan. A good interest rate is usually the lowest possible interest rate that you can avail on your personal loan considering the various application based factors such as your credit score, income and repayment capacity, employment stability, loan amount and tenure that you desire, etc. Besides, the best interest rate that you can avail on your personal loan also varies with the lender that you are applying your loan with and the personal loan variant that you opt for.
However, besides a lower interest rate, you must also consider the method of interest calculation adopted by a prospective lender. Contrary to the flat interest rate method, the reducing balance method involves calculating interest only on the outstanding loan principal amount every month which helps decrease the total interest payout on the loan.
Ways to Secure a Good Interest Rate on your Personal Loan
The following are a few key ways which can help you secure a good interest rate on your personal loan:
- Shop around and use an online financial platform such as Paisabazaar.com to compare various interest rates and charges online to get the best deal. Do remember to consider other charges such as processing fees, foreclosure charges, etc. besides interest rate that make up the complete cost of the loan.
- Apply with a lender you have a good prior existing relationship with or opt for a pre-approved loan offer. This may also help you get a good interest rate on your personal loan.
- Reduce your existing debt and have a low debt-to-income ratio (preferably lower than 30%)
- Maintain a good credit score.