Personal Loan Interest Rates

If you are applying for a personal loan, do note that your eligibility for the loan along with the interest rate offered to you post your application would depend on your credit profile. Consumers with a strong credit history and excellent repayment record are likely to get a lower interest rate. Factors like income, profession and employer also determine your eligibility for a personal loan. Most Banks and large NBFCs usually prefer salaried individuals with a stable employment history and a strong credit profile.

Those with a damaged credit profile, which is reflected in their credit report, are likely to get rejected by Banks and NBFCs (especially those with a credit score lower than 700). There are a few NBFCs that may cater to some of these consumers, albeit at higher interest rates and for lower loan amounts.

Rates Updated as 1st september 2025

Banks and NBFCs primarily set personal loan interest rates based on the cost of funds and the credit risk evaluation of their loan applicants. Here are the factors affecting personal loan interest rates:

The interest rates of personal loans can significantly impact your overall borrowing costs. Here are five tips you can follow to improve your chances of availing a personal loan at a lower interest rate:

When applying for a personal loan, one of the key decisions you’ll need to make is whether to choose a fixed or floating interest rate. Understanding each type of interest rate can help you make an informed decision based on your financial goals. Here is an overview of both options:

Fixed Interest Rates

In case of fixed interest rate personal loans, as the term implies, the interest rate remains the same for the entire loan tenure. As a result, your EMIs remain constant and therefore easier for borrowers to plan their budget. However, fixed rate loans usually come with a higher spread than floating rates.

Floating Interest Rates

In case of personal loans availed at floating interest rates, the interest rate fluctuates over time based on changes in the linked benchmark rate (repo rate). Note that the EMIs would increase only in the case of floating rate personal loans availed with the ‘EMI change’ option. In this case, the tenure would remain the same irrespective of the changes in the interest rates. In case of floating rate personal loans availed with ‘tenure change’ option, the EMI would remain the same while the tenure would change as per the changes in the interest rates.

Personal loan tenures usually range from 1 to 5 years with some banks and NBFCs offering longer tenures of 6, 7 or 8 years. The choice of loan tenure directly affects the borrower’s EMIs and total interest cost. Opting for a longer tenure lowers loan EMIs, making repayment easier for borrowers having limited repayment capacity. However, this convenience comes at the cost of incurring higher interest costs. Borrowers who choose longer tenures can reduce their total interest cost by making prepayments, whenever they have surplus funds. Personal loan applicants should opt for shorter tenures only when they have adequate repayment capacity for the EMIs.

Let’s Take an Example: Rs 5 Lakh Loan EMI Across Tenures

Below is the EMI, total interest cost and total amount payable for different tenures of a personal loan of Rs 5 lakh at an interest rate of 11.50% p.a.

Analysis:

• Choosing a longer tenure lowers your EMI, making monthly repayments more manageable. For instance, EMI reduces from Rs 44,308 (1-year tenure) to Rs 10,996 (5-year tenure).
• But, longer tenure comes at a cost as it significantly increases the total interest cost over the repayment period. For example, with a 5-year loan, you pay Rs 1.59 lakh in interest, which is over 5 times more than the Rs 31,690 paid on a 1-year loan

Key Takeaway

If you have adequate repayment capacity, you can opt for shorter tenures to save on overall interest cost.  But if you are not able to manage higher EMIs or have limited repayment capacity, you can opt for longer tenures and consider prepaying your loan when you have adequate funds, keeping aside emergency funds.

Personal Loan Balance Transfer (PLBT) allows existing borrowers to transfer their outstanding loan balance from one lender to another at a lower interest rate, for a longer tenure and/or for better terms and conditions. The interest rate offered by the new lender would depend on the borrower’s credit score, income, existing outstanding loan amount, tenure and other aspects of their credit profile.

Borrowers should note that there are certain nominal charges, such as foreclosure charges and loan transfer fees payable to their existing lender. Additionally, the new lender may charge a processing fee, stamp duty and other fees that are associated with a fresh loan application. Therefore, it’s important to carefully evaluate whether the savings on interest from the balance transfer will outweigh these associated costs.

Comparing interest rates before applying for a personal loan is important, as even a slight difference can lead to significant savings over the repayment tenure.

RBI monetary policy and its liquidity maneuvers can directly impact the cost of funding for the banks/NBFCs, which in turn will impact the interest rates for fresh borrowers. These will also impact existing borrowers who have availed loans at floating interest rates, subject to their interest rate reset date set by their lenders. However, these policy changes will not impact the interest rate of fixed rate personal loan borrowers as their interest rate will remain unchanged for their entire loan tenure.