Compare Personal Loan Interest Rates 2021: All Banks

Latest Personal Loan Interest Rates in India 2021

*Interest rates are subject to periodic change as per bank/NBFC policies. Rates updated as of February 22, 2021.

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Interest rate is one of the key factors that determine the cost of borrowing. A lower interest rate is preferable as it decreases the interest payout for the borrower over the entire loan tenure.

Types of Personal Loan Interest Rates

There are basically two types of Interest rates applicable on a personal loan, these are:

• Fixed Rate of Interest
• Floating Rate of Interest

a) Fixed Rate of Interest: In this case, the rate of interest remains constant throughout the loan tenure. Consequently, monthly EMI amount also remain fixed throughout the loan repayment period. This may help you plan your monthly expenditure in the long term.

b) Floating Rate of Interest: It depends on either the internal benchmark set by the lender or as current market conditions. As a result, floating interest rate is liable to change periodically which leads to increase/decrease in loan tenure or monthly EMI payouts depending on whether the rate moves upwards or downwards.

Interest Calculation Methods

Personal loan interest can be calculated in the following two ways:

a) Flat Rate
b) Reducing Balance method

a) Flat Rate Method of Interest Calculation: In this method, interest is calculated on the total loan amount initially borrowed over the entire tenure of the loan.

b) Reducing Balance Method of Interest Calculation: As you pay off your monthly EMIs, parts of the loan amount and the interest component are paid off. Thus, the principal loan amount keeps on decreasing with time. In this method, interest is calculated on this decreasing loan amount and not the total amount initially borrowed.

Top 10 Banks in India Offering Lowest Personal Loan Interest Rates

The following are the top 10 banks and NBFCs in India offering the lowest interest rates on personal loans*:

*Updated as of 22 February, 2021

Interest Rates for Different Applicant Types

Most lenders consider a number of factors when deciding the interest rate applicable to personal loan applicants. One of these is the applicant type. The following are some insights regarding how personal loan interest rates tend to vary depending upon the type of applicant:

• Salaried and self-employed: Whether the applicant is salaried or self-employed can significantly impact the interest rate applicable to a personal loan. Generally, salaried employees with a stable employment record working with reputed organizations tend to get a personal loan at a lower rate of interest than self-employed. This is because salaried employees working with a reputed company have greater job security, and in most cases better ability to repay their loan. However, self-employed applicants with a stable source of income can also avail personal loans from banks and NBFCs at competitive interest rates.
• Women: Certain banks and NBFCs, such as Bajaj Finserv and Fullerton India offer preferential rate of interest to women. This is in an attempt to promote salaried women, entrepreneurs and professionals to fulfill their dreams and be financially stable.
• Pensioners: Pensioners can avail special personal loan specifically meant for them at a relatively lower rate of interest from banks like State Bank of India (SBI) and Punjab National Bank (PNB). In most cases, preferential (lower) interest rate on pension loans is available in case, the pension account is held with the chosen lender.

Please note that beyond the applicant type, interest rate depends on the individual applicant profile. People with a stable source of income, good credit history and high credit score tend to receive a loan at a lower rate, irrespective of their category.

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Personal Loan Balance Transfer Rates

Personal Loan balance transfer refers to the process, wherein you transfer your existing personal loan account with an existing lender to a new lender for better repayment terms such as a lower interest rate. This option generally allows you to save on the interest payable on your personal loan. For example: if you transfer your existing personal loan of Rs. 10 lakh@16% for 48 months after 12 months to another bank offering a lower rate of interest @14% p.a. for the remaining tenure of 36 months, then you will save Rs. 28,421*. Please note that in this example, as illustrated below, both the banks follow reducing balance method of interest calculation.

*The example is for illustrative purposes only.

The personal loan balance transfer rates depend on both the bank’s internal criteria as well as the individual applicant’s profile. For example, the personal loan balance transfer interest rates for HDFC bank, ICICI Bank and Axis bank start at 11.39%, 11.29% and 12% respectively. Do keep in mind that personal loan balance transfer offers typically have some additional fees/charges associated with them such as processing fees, prepayment charges applicable to the original loan, etc.

Interest Formula and Calculation

Following are the formulae for interest calculation using flat rate method and reducing balance method:

• Flat Rate Method: Interest is charged on the total loan amount initially borrowed. The formula to calculate EMI on the basis of this method is as follows:

EMI by Flat Rate Method = (Principal + Total Interest Payable) / Loan Tenure in Months

Where, Total Interest Payable = Principal x Interest Rate x Loan Tenure/100

• Reducing Balance Method: In this case interest for subsequent months is charged on the outstanding loan amount. The formula to calculate EMI on the basis of this method is as follows:

EMI by Reducing Balance Method = [P x R x (1+R)^N]/[(1+R)^ (N-1)]

Where,

P = Principal loan amount

R = Rate of interest on a monthly basis

N = Loan repayment tenure in months

Following table shows the total interest payout and EMI calculation using the 2 methods of interest calculation:

*NOTE: Savings occur due to lower total interest payout when reducing balance method of interest calculation is used.

Monthly EMI Payment Comparison of Popular Banks in India

The following is a comparison of the monthly payments (EMIs) of popular banks in India for different loan amounts, interest rates and tenures:

How to Get Low Interest Rate on Personal Loan?

Follow the below-mentioned tips to get low interest rate on your personal loan:

• Maintain a high credit score.
• Keep a low credit utilization ratio.
• Maintain a low FOIR (fixed obligation to income ratio).
• Do not apply for a personal loan with multiple lenders at the same time.
• Opt for your personal loan from a bank/NBFC with which you already have a relationship, such as a savings account or a fixed deposit.

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Factors Affecting Personal Loan Interest Rates

• Credit History and Credit Score: Your credit history and credit score are reflective of your creditworthiness. The higher your credit score, greater are your chances of getting approved for a personal loan at a low rate of interest.
• Income: Higher income typically indicates at a higher repayment capacity which often translates into a preferentially lower rate of interest for your personal loan.
• Credit Utilization Ratio: This refers to the ratio of credit used to the total credit available to you. Ideally, this should not exceed 30%. A lower credit utilization ratio typically indicates higher repayment capability.
• Fixed Obligation to Income Ratio (FOIR): This refers to the ratio of pre-exisiting loan EMIs and credit card dues to your income. A large amount of pre-exisiting obligations leaves only a small amount of your income. Thus, you should maintain a low FOIR, preferably lower than 50% to get low personal loan interest rate.
• Multiple Loan Applications: You should never apply for a personal loan with multiple lenders at the same time, as this portrays you as credit hungry. If multiple enquiries of your credit report are conducted within a short time, it negatively affects your credit score and lowers the chances of getting approved for a personal loan at a low interest rate.
• Pre-exisiting Relationship with the Lender: Having a previous relationship with a lender also impacts the personal loan interest rate. For example, if you already have a savings account or a fixed deposit with the bank, chances of getting a lower rate of interest on your loan increases.

Frequently Asked Questions (FAQs)

Q1. What is the personal loan rate for SBI?

Ans. SBI personal loan interest rate starts from 9.60% p.a.

Q2. Which private sector banks are currently offering the lowest interest rates on personal loans?

Ans. The top 5 private sector banks that offer the lowest personal loan interest rates are as follows*:

*Updated as of 22 February, 2021

Q3. Which government banks are currently offering the lowest interest rates on personal loans?

Ans. The top 5 public sector (government) banks that offer the lowest interest rates on personal loans are as follows*:

*Updated as of 22 February, 2021

Q4. Which one provides personal loan at a lower rate of interest – NBFCs or Banks?

Generally, banks provide personal loan at a lower rate of interest than non-banking financial companies (NBFCs). However, the eligibility criteria for personal loans from banks is often more stringent than that of NBFCs.

Q5. How can I check total interest payout for my personal loan?

You can check both your monthly EMI and total interest payout using personal loan EMI calculator. All you need to provide are the loan principal, the interest rate and the loan tenure to get instant results!

Q6. Do government employees get special low interest rates on personal loans?

Ans. Many leading banks in India do currently offer special low interest rates on personal loans to government employees. This is due to the higher job stability typically associated with those in government service as compared private service. To know details of such offers and whether you qualify, please contact the prospective lender directly.

Q7. What are the top foreign banks offering personal loans in India?

Ans. The top foreign banks currently offering personal loans in India are*:

*Updated as of 22 Feb, 2021

Q8. Do women borrowers get a lower interest rate on personal loans?

Ans. Currently women do not get lower interest rate personal loans in India. This benefit of lower interest rates for women is currently available only in case of home loans.

Q9. Do bank employees get special low interest rate on personal loans?

Ans. Yes, banks usually offer lower interest rates on personal loans to their employees as compared to what is available to the general public. However, the extent of this benefit differs from one bank to another.

Q10. What is a good interest rate for personal loans in India?

Ans. In case of personal loans, the lower the interest rate, the better. As of February 22, 2021 the lowest personal loan interest rate on offer is 8.45% p.a. from Central Bank of India and UCO Bank. However, a majority of lenders are currently offering their personal loan in the 9.00% p.a. to 11.00% p.a. range.

Q11. What is the difference between fixed and floating personal loan interest rates?

Ans. In case of fixed interest rate loans, the rate remains unchanged over the entire tenure of the personal loan. In case of floating rate loans, the rate can change periodically due to changes in market interest rates. Currently most personal loans are offered at fixed rates as most of these loans have a relatively short tenure of up to 5 years.

Q12. Are there any personal loan offers in India that feature Nil interest rate?

Ans. No. Currently personal loans in India feature interest rates starting from 8.45% p.a. (as of February 22, 2021). However, some lenders do occasionally provide special no cost EMI offers for the purchase of consumer durables, which may be considered similar to personal loans for purchase of consumer durables at nil interest rate.    

Q13. Which bank in India offers the lowest interest rate on personal loans?

Ans. As of 22nd February 2021, the lowest personal loan interest rate is offered by Central Bank of India and UCO Bank at 8.45% p.a.

Q14. How do I get the lowest personal loan interest rate?

Ans. The following are some tips to get the lowest interest rate on personal loans:

• Maintain a high credit score
• Keep a low credit utilisation ratio (30% or lower)
• Minimize your outstanding debt
• Have a stable job with a reputable employer/a stable business
• Apply with a lender you have an existing relationship with (such as savings/current account, credit card, etc.)

Q15. My salary is Rs. 20,000 per month. What is the maximum personal loan I can get?

Ans. Each bank utilises its own unique method to calculate the maximum personal loan amount based on monthly income. Some banks calculate the maximum personal loan using the Gross Monthly Income or Net Monthly Income criteria.

For example, Indian Bank offers maximum personal loan amount equal to 20 times the gross monthly income of the applicant. So for a monthly income of Rs. 20,000, the maximum loan amount offered by Indian Bank is Rs. 4 lakh (20×20,000).

However, lenders do consider additional criteria such as existing debt obligations, job stability, number of dependants, city of residence, etc. to determine the maximum loan amount for a specific applicant.

Q16. What will be my EMI if I borrow a personal loan of Rs. 20 lakh?

Ans. EMI or equated monthly instalments are calculated using 3 key pieces of data – amount borrowed, interest rate of the loan and loan tenure. All 3 data are required to calculate your personal loan EMI. So if you have taken a personal loan of Rs. 20 lakh at 10% interest for 5 year tenure, your EMI will be Rs. 42,494. On the other hand if the same 5 year loan is taken at 8.50% interest rate, your personal loan EMI will be Rs. 41,033.

Q17. I already have a savings account with State Bank of India. Will I get a low interest rate if I apply for a personal loan with SBI?

Ans. Having a prior banking relationship such as a savings or current account in good standing with a prospective lender can help you get a lower interest as compared to other prospective borrowers. However, this benefit is not guaranteed and you will have to get in touch with State Bank of India to know if you are eligible for this benefit.

Q18. Which type of loan has the lowest interest rate?

Ans. In India the lowest interest rate is currently offered on home loans which start at 6.90% p.a.