Interest rate refers to the rate at which interest is applicable on any amount borrowed from a bank or Non-Banking Financial Company (NBFC). Personal loan interest rate is one of the most important factors that determine selection of a loan offer. Thus, one should always compare interest rates from multiple lenders before settling on a loan offer. In the following sections we will discuss the current interest rates for personal loans in India offered by various lenders.
Current Personal Loan Interest Rates
Following is the list of current personal loan interest rates (as of January, 2020) offered by the major banks and Non-Banking Financial Companies (NBFCs) in India:
|Name of the Bank/NBFC||Personal Loan Interest Rate*|
|Bajaj Finserv||12.99% onwards|
|Bank of Baroda||11.40-16.40%|
|Federal Bank||11.49% onwards|
|ICICI Bank||11.25% onwards|
|IDBI Bank||12% – 14%|
|IDFC First||11.50% onwards|
|Indian Bank||10.35% onwards|
|IndusInd Bank||10.75% onwards|
|Kotak Mahindra Bank||10.99-24%|
|Muthoot Finance||14.50% onwards|
|Punjab National Bank||RLLR+2.15 to RLLR+6.70%|
|Standard Chartered Bank||11.99% onwards|
|State Bank of India||10.50% onwards|
|TATA Capital||10.99% onwards|
|Yes Bank||10.99% onwards|
*Interest rates are subject to periodic change as per bank’s policies.
Types of Personal Loan Interest Rates: Fixed Rate v/s Floating Rate
- 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.
- 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: Flat Rate v/s Reducing Balance Rate Methods
Personal loan interest can be calculated in the following two ways:
- 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.
- 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.
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, personal loan 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.
Personal Loan Balance Transfer Interest 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.
|Particulars||Original loan parameters||Balance Transfer Parameters|
|Outstanding Loan amount||Rs. 10 lakh||Rs. 8,06,106|
|Tenure||48 months||36 months|
|EMI||Rs. 28,340||Rs. 27,551|
|Total interest payout||3,60,333||3,31,912|
*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)]
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:
|Parameters||Flat Rate Method||Reducing Balance Method|
|Loan Amount||Rs. 20 lakh||Rs. 20 lakh|
|Tenure||60 months||60 months|
|Interest Rate||15% p.a.||15% p.a.|
|Total Interest Payout||Rs. 15 lakh||Rs. 8,54,792|
|EMI||Rs. 58,333||Rs. 47,580|
*NOTE: Savings occur due to lower total interest payout when reducing balance method of interest calculation is used.
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.
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?
SBI personal loan interest rate starts from 10.50%.
Q2. What is the personal loan rate of interest for Federal Bank?
Personal loan interest rate for Federal bank starts at 11.49%.
Q3. What is the personal loan interest rate for Canara Bank?
Canara Bank personal loan interest rate starts at 10.55%.
Q4. What are the rates of interest for personal loan from Axis Bank?
Axis Bank personal loan interest rate varies from 12% to 24%.
Q5. What is the personal loan interest rate for Bank of Baroda?
The interest rate for Bank of Baroda personal loan starts from 11.40%.
Q6. What is the rate of interest on personal loan for Yes Bank?
The personal loan interest rate for Yes Bank personal loan starts from 10.99%.
Q7. What is the personal loan interest rate for ICICI Bank?
ICICI Bank personal loan interest rate starts from 11.25%.
Q8. What is the personal loan rate of interest offered by HDFC Bank?
Personal loan interest rate for HDFC Bank starts from 10.75%.
Q9. 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.
Q10. How can I check total interest payout for my personal loan?
You can check both your monthly EMI and total interest payout using Paisabazaar personal loan EMI calculator. All you need to provide are the loan principal, the personal loan interest rate and the loan tenure to get instant results from Paisabazaar’s online personal loan EMI calculator.