Personal Loan Interest Rates

Personal loan interest rates refer to the cost (expressed in terms of percentage) incurred by the borrowers for borrowing money in the form of a personal loan.

Among the leading private sector banks, IndusInd Bank offers the lowest interest rates on personal loans starting at 10.49% p.a., closely followed by ICICI Bank offering personal loans at 10.80% p.a. onwards. Some public sector banks may offer lower interest rates. However, the final interest rate offered will depend on factors such as credit score, monthly income, occupation profile, etc.

Personal loan interest rates vary between banks and NBFCs, depending on factors such as your credit score, employment history, income and the lender’s credit risk policies. Currently, the personal loan interest rates offered by private sector banks start from 10.49% p.a. onwards. However, some public sector banks may offer personal loans at lower interest rates.

GST is not applicable on the interest component of personal loans. However, a GST of 18% is levied on the various personal loan fees and charges levied by the lenders.

There is no such thing as good personal loan interest rates. Lenders consider their cost of funds, net interest margins and the credit risk assessment of their loan applicants while setting their interest rates. Those with higher credit scores are likely to fetch lower interest rates on personal loan schemes. Therefore, loan applicants with higher credit scores should check and compare interest rates offered by multiple lenders to know the best offers available on their credit profiles.

The interest rate for personal loans offered by private sector lenders usually starts from 10.50% p.a. Note that the lenders may offer lower personal loan interest rates than their published card rates, based on the borrower’s credit profile, subject to their floor rate for retail loans as per RBI’s guidelines.

Most lenders usually offer lower personal loan interest rates to their salaried applicants than self-employed applicants due to the higher income certainty of the former. Note that apart from the applicant’s occupation profile, lenders would also consider other factors of the loan applicant’s credit profile like his/her credit score, income profile, etc while setting his/her interest rates.

The interest rates offered on personal loans by most lenders usually range from 10.50% to 26% p.a., with some public sector banks offering lower rates. However, the average personal loan interest rates depend on the applicant’s credit score, income, etc.

Lenders use the credit score of their personal loan applicants as an initial check of their creditworthiness. Applicants with a credit score of 750 or above are usually considered as financially disciplined and thus, are believed to carry lower risk of loan defaults. This reduces the credit risk for the lenders, thereby allowing them to offer personal loans at lower interest rates to such applicants.

NBFCs usually offer higher interest rates on personal loans than those offered by banks because of their higher cost of funds. However, some larger NBFCs with access to low cost funds may offer personal loans at competitive interest rates.

Both existing as well as fresh personal loan applicants are free to negotiate the interest rates with the lenders. Additionally, they should also visit online financial marketplaces like Paisabazaar to explore personal loan offers from other lenders based on their credit profile.

Existing personal loan borrowers can reduce their interest burden by transferring their outstanding loan amount to another lender by offering them lower interest rates and/or better personal loan terms. Reduced interest rates will lead to a reduction in both EMIs and overall interest costs. Personal loan borrowers can also reduce their interest burden by making part prepayments whenever feasible. Those opting for part prepayment on their personal loans can either reduce their loan tenure or EMI. Personal loan borrowers seeking to reduce their interest burden further should opt for tenure reduction as it results in interest cost savings.

The interest amount payable on personal loans for home renovation/repair is eligible for tax deduction under Section 24(b) of the Income Tax Act. You can claim deductions of up to Rs 30,000 per year on the interest amount paid on your personal loan.

You can check your monthly EMI and total interest cost 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.

Reducing interest rate is a method in which interest rate is calculated on the outstanding loan amount every month. The EMI includes the interest payable on the outstanding loan amount.

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 loans have a relatively short tenure of up to 5 years.

Personal loan applicants having a credit score of­ 750 and above reflect good credit behavior and financial discipline. Therefore, such applicants have a higher probability of getting their personal loan applications approved. Conversely, applicants with credit scores below 750 have lower chances of getting a personal loan. However, some NBFCs and fintech lenders offer loans to individuals with low credit scores. The personal loan interest rates offered by such lenders are usually higher than those offered by large banks and NBFCs.