Personal Loan Interest Rates: Compare Rates of All Banks & NBFCs in India

The interest rate offered on your Personal Loan is the most important factor that determines the total cost of the loan. A lower interest rate means lower EMIs and lowers interest payout over the loan tenure. Let us have a look at the latest personal loan interest rates offered by various banks and NBFCs.

Current Personal Loan Interest Rates in India, April 2021

*Interest rates are subject to change as per bank/NBFC policies. Rates updated on April 28, 2021.

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Factors Affecting Personal Loan Interest Rates

While the lowest interest rate on a personal loan is fixed by each bank and NBFC periodically, borrowers should note that lenders decide the interest rate to be offered to a loan applicant basis the repayment capacity and credit history. When you apply for a personal loan, banks and NBFCs consider the following to determine the eligibility of an applicant and the interest rate to be offered:

• Credit History and Credit Score: When you apply for any kind of lending product, a lender will first check your credit history by looking at your credit score and credit report. Your credit history and credit score represent your creditworthiness. If you have behaved responsibly with credit in the past, your credit score is likely to be strong. The higher your credit score, the greater are your chances of getting approved for a personal loan at a low interest rate.
  

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• Income & Employer: A high income indicates a stronger capacity to repay the loan, which means lower risk for the lender. This often leads to a lower rate of interest for your personal loan. Also, if you are employed with a reputed large organization like an MNC or a Government organization, Banks and NBFCs perceive this as a sign of stable employment and hence, may offer you a personal loan at a lower rate. Usually, salaried employees have a better chance of availing a personal loan at a lower rate of interest, as it may be difficult for lenders to accurately assess the income of the self-employed.
• Fixed Obligation to Income Ratio (FOIR): The portion of your income you use each month to repay your existing loan EMIs and credit card bill is also a key factor that lenders evaluate while processing your loan application. This is calculated through FOIR which is the ratio of pre-existing loan EMIs and credit card dues to your monthly in-hand income. If your FOIR is north of 50%, lender Banks and NBFCs will consider this a negative factor that may impact your loan eligibility and the rate of interest.
• Credit Utilization Ratio: This refers to the ratio of credit used to the total credit available. A higher Credit Utilization is viewed by lenders as over-reliance on credit, which can pose a risk to one’s future repayment capacity. For example, if you max out your credit cards frequently, some lenders may hesitate in offering you a personal loan at a low rate of interest. Ideally, your Credit Utilization Ratio should not exceed 40%. A lower credit utilization ratio typically indicates lesser dependence on credit and higher repayment capability.
• Multiple Loan Applications over a short period: You should never apply for credit with multiple lenders over a short period. You should know that each time you apply for a credit product, it is reflected in your credit report. If there are too many enquiries over a short span of time in your credit report, lenders see this as a sign of ‘credit hungriness’ which means you are desperate for credit. This not only impacts your chances of getting a loan at a low interest rate but is also likely to decrease your credit score.
• Pre-existing or Past Relationship with the Lender: At times, having a previous relationship with the lender can also impact the personal loan interest rate. For example, if you already have a salary account or a credit card with a bank, it can look at your historical data to assess the risk. In case the banks see you as a ‘good and low-risk borrower’, there are good chances you may be offered a personal loan at a low rate of interest.

Also Note:

• Certain banks and NBFCs, such as Bajaj Finserv and Fullerton India offer a 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 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)
• Mostly, the preferential (lower) interest rate on personal loans is available if the pension account is held with the lender
• Borrowers with an average credit score (less than 700), lower income and repayment capacity, are less likely to be approved for a personal loan. If they do, the loan is likely to be offered by only select lender NBFCs at an extremely high interest rate. In certain cases, the interest rate can be over 25% p.a.
• Also, such borrowers, who are seen as a risk to lend to by Banks and NBFCs, may get approved only for smaller loan amounts. It’s highly unlikely that a lender would offer high ticket size personal loans to borrowers with damaged credit history and weak repayment capacity.

Personal Loan Interest Calculation Methods

Personal loan interest can be calculated in the following two ways:
a) Flat Rate
b) Reducing Balance method

• 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.

Lowering your Interest Rate through a Personal Loan Balance Transfer

If you are an existing personal loan borrower, you can lower your existing rate of interest by transferring the loan to a different lender. 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 the 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.

It is advised to opt for a personal loan balance transfer only when you can make significant savings by changing your lender. The savings you make by transferring your personal loan should be ideally considerably higher than the cost you would incur during the process.

Frequently Asked Questions (FAQs)

Q1. Which one provides a personal loan at a lower rate of interest – NBFCs or Banks?
Ans. Generally, banks provide personal loans at a lower rate of interest than non-banking financial companies (NBFCs). However, the eligibility criteria for personal loans from banks are often more stringent than that of NBFCs. Also, the individual profile plays an important role in deciding the interest rate.

Q2. How can I check the total interest payout for my personal loan?
Ans. You can check both your monthly EMI and total interest payout using the personal loan EMI calculator. All you need to provide are the loan principal, the interest rate and the loan tenure to get instant results.

Q3. Do government employees get special low interest rates on personal loans?
Ans. Many leading banks in India do currently offer special 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 to private sector employees. To know the details of such offers and whether you qualify, you should contact the prospective lender.

Q4. Do women borrowers get a lower interest rate on personal loans?
Ans. Yes, to encourage salaried women, professionals and entrepreneurs to become financially stable and fulfill their dreams, certain banks and NBFCs do offer preferential rates of interest on personal loans to women.

Q6. What is a good interest rate for personal loans in India?
Ans. In the case of personal loans, the lower the interest rate, the better. As of April 28, 2021, the lowest personal loan interest rate on offer is 8.45% p.a. from the Central Bank of India and UCO Bank. However, a majority of lenders are currently offering their personal loans in the 9.00% p.a. to 11.00% p.a. range.

Q7. What is the difference between fixed and floating personal loan interest rates?
Ans. In the case of fixed interest rate loans, the rate remains unchanged over the entire tenure of the personal loan. In the 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.

Q8. Are there any personal loan offers in India that feature Nil interest rates?
Ans. No. Currently, personal loans in India feature interest rates starting from 8.45% p.a. (as of April 28, 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 the purchase of consumer durables at a nil interest rate.    

Q9. My salary is Rs. 20,000 per month. What is the maximum personal loan I can get?
Ans. Each bank utilises its 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 a 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.

Q10. 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 parameters – the 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 an 8.50% interest rate, your personal loan EMI will be Rs. 41,033.

Q11. I already have a savings account with the 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 the State Bank of India to know if you are eligible for this benefit.

Q12. Can offering collateral help me avail a good interest rate on my personal loan?
Ans. The interest rate offered on your personal loan depends upon the level of risk you pose for the lender. Collateral serves as a security against default on repayments and minimizes the risk for the lender which may help you get an affordable interest rate on your personal loan. However, do remember in case you fail to repay your loan on time, the lender can liquidate your collateral to recover the loss.

Q13. How do I benefit if the interest on my personal loan is calculated using the reducing balance method?
Ans. Unlike the flat rate method, the reducing balance method involves calculating interest only on the outstanding loan principal amount, which decreases as successive monthly EMIs are paid off. As a result, the EMI amount decreases and does not remain fixed as in the case of the flat rate method. Thus, this method of interest calculation also helps you save on the total interest payout of the loan.

Q14. Is it enough to look for the lowest interest rate when opting for a personal loan?
Ans. It is always good to opt for a personal loan with the lowest interest rate. However, one must also consider other factors such as the interest calculation method adopted by the lender, loan repayment terms and options as well as other charges such as processing fees, foreclosure charges, etc. that make up the complete cost of the loan.

Q15. How do my employment history and experience play a role in determining the PL interest rate?
Ans. Employed with a reputed company for long signifies that you have a relatively stable source of income and you pose less risk to the lender. Thus the lender may provide you lower interest rate.

Q16. Can a bank change the rate of interest during the loan tenure?
Ans. In case you have taken a loan that has a fixed interest rate, the bank will not change your rate of interest in the middle of the tenure. However, if you have opted for a floating type interest rate, the bank may change the rate of interest whenever there is a change in MCLR.