Last Updated on 5 months ago by Raj Kumar
Personal loans are the go-to type of loan for most salaried classes as they are easy to get and most have less paperwork as compared to any other loan like home loan, vehicle loan, etc. But with the easiness, the rate of interest for personal loans is slightly higher than other loans!
Personal loans are easy to get nowadays as banks offer personal loans without much documentation but there are few factors they check before they disburse the loan
- CIBIL score
- Previous loan defaults
- Bank account
CIBIL score is the most important factor in getting any loans. If you don’t have a good CIBIL score then there are chances that your loan request gets rejected or you may have to pay a higher interest rate for your personal loan application.
Here is how a CIBIL score is likely to impact your personal loan application –
|CIBIL Ratings||Credit Score||Chances of being approved for a Personal Loan|
|Poor||Less than 600||You may not qualify for a personal loan|
|Average||Between 600 and 750||The loan may be approved but at a high-interest rate|
|Good||Over 750||The loan is likely to be approved with a lower interest rate|
|Excellent||Between 800 and 900||Loan with a low-interest rate, faster approval, |
higher loan amount
From the above table, it’s clear that it’s absolutely critical to have a good CIBIL score not only to be eligible for a personal loan but when you have a good CIBIL score then it helps you get less rate of interest.
It’s also important to know that you shouldn’t default on any of your previous loans as if you default on your loans then all the banks can obtain this information via the CIBIL ratings. If you have an outstanding loan that is defaulted then you may not get a loan at all.
Personal loan interest rates
Nowadays all the banks are offering attractive interest rates on loans. If you have a good CIBIL rating then that helps you get a very attractive rate on your loan application. Here is the list of banks which offer loans and their interest rates –
|Bank||Interest Rate (p.a.)||Processing Fee|
|State Bank of India||9.60% p.a. – 15.65% p.a.||Up to 1.50%|
|ICICI Bank||11.25% p.a. – 21% p.a.||Up to 2.25%|
|HDFC Bank||10.75% p.a. – 21.30% p.a.||Up to 2.50%|
|Yes Bank||13.99% p.a. – 16.99% p.a.||Up to 2.50%|
|Citibank||10.50% p.a. – 17.99% p.a.||Up to 3%|
|Kotak Mahindra Bank||10.50% and above||Up to 2.5%|
|Axis Bank||12% p.a. – 24% p.a.||1.5% – 2%|
|Bank of Baroda||10.50% p.a. onwards||Up to 2%|
|HSBC Bank||10.50% p.a. – 17.84% p.a.||Up to 1%|
|IDFC First Bank||15% and above||Up to 3.5%|
|Tata Capital||11.25% onwards||Up to 2.75%|
|Karnataka Bank||12% p.a. – 17% p.a.||0.50%|
|Home Credit Cash Loan||13% p.a. – 30% p.a.||0%-5%|
|Canara Bank||12.05% onwards||1%|
|Ujjivan Small Finance Bank||16.50% p.a. – 20% p.a.||At the discretion of the bank|
|Federal Bank||10.49% p.a. – 17.99% p.a.||Up to 3%|
|IndusInd Bank||11.00% p.a. – 31.50% p.a.||2.5% onwards|
|IIFL||13.49% p.a. onwards||Up to 3%|
|Bank of India||10.85% p.a. – 12.85% p.a.||Up to 2%|
|Aditya Birla Capital||11% onwards||0.5% and 1%|
|Fullerton India||11.99% p.a. – 36% p.a||Up to 6%|
|IDBI Bank||8.55% p.a. – 11.30% p.a.||Contact the bank|
|Corporation Bank||10.75% and above||1.50%|
|Karur Vysya Bank||12% onwards||0.30% onwards|
|South Indian Bank||11.55% p.a. – 14.4% p.a.||Up to 2%|
|Indian Overseas Bank||10.80% and above||Up to 0.50%|
|RBL Bank||14% p.a. – 23% p.a.||Up to 4%|
|Punjab National Bank||8.95% p.a. – 14.50% p.a.||Up to 1.80%|
|Bank of Maharashtra||9.70% p.a. – 10.70% p.a.||1%|
|Central Bank of India||9.85% and above||Rs.500|
|City Union Bank||16% p.a.||1.25%|
|Dhanalaxmi Bank||12% p.a. – 15.7% p.a.||Up to 2.5%|
|J&K Bank||11% p.a. and above||Up to Rs.500|
|Nainital Bank||10.0% p.a. – 10.50% p.a.||Up to 1%|
|Oriental Bank of Commerce||9.55% p.a. – 11.05% p.a.||Up to 1%|
Consider reading – 13 safe investments with high returns in India
How to get a low-interest rate on a personal loan?
There is a cutthroat competition amongst banks to disburse loans these days and if you are smart you can negotiate a good deal on your loan. Here are some tips to get the lowest interest on personal loans –
1. Have a good CIBIL score
Having a good credit score (above 800) gives your the upper hand when negotiating the interest rates with banks. If you have a CIBIL score of > 800 then you can easily ask for a reduction of 2-3% on the interest rate amount for your personal loan.
2. Don’t miss repayments of your loans
You should absolutely make sure that you shouldn’t miss any of the repayments for any type of loan you have taken including your credit card repayments. If you miss a repayment then the bank loses trust in you and they may not offer the best interest rate that you are looking for.
3. Look out for offers and deals
All the banks come out with attractive offers to lure customers. There is always a deal in every 1- 2 months on loans offered by banks.
4. Negotiate with the bank
Negotiate with a bank that you are getting a loan at lesser interest with a different bank. This will help you in getting a competitive interest rate.
Fixed Interest Rates vs Floating Interest Rates personal loans
When you apply for a personal loan then you are offered 2 choices
- Fixed interest rates
- Floating interest rates
When you take a loan at the fixed interest rate then you are charged the same interest rate for the entire duration of the personal loan but whereas if you take a personal loan at the floater interest rate then your personal loan will depend on the MCLR (Marginal Cost of Lending Rate).
So what should you choose?
The fixed interest rate is advisable when the interest rate has fallen quite a lot in the last 1-2 years. This will help you lock in the loan at a very cheap interest rate.
If the interest rate has risen quite a lot in the recent past then it is advisable to take a loan at floater rates so that your loan interest comes down if the MCLR goes down.
What is Reducing Interest Rate Personal Loan?
When you avail of a personal loan at a fixed interest rate, the interest is calculated on the entire loan amount throughout the loan repayment period. In comparison, if you avail a loan at a reducing interest rate/reducing balance rate structure, the interest is only calculated on the outstanding loan amount.
Thus, in this case, when you make a repayment, the interest for the remainder of the loan tenure will be calculated on the outstanding loan balance.
Things to Consider while taking a Personal loan
If you are not careful then a personal loan will dent your finances in a big way and you will end up paying a lot for your loan repayments.
Here are 5 things to watch out for while taking a personal loan –
- Interest rate – Make sure you get the best interest rate while you take the loan. Negotiate with the bank and ask them to bring down the interest rate.
- Processing fees – Processing fees are hidden elements of any loans. For personal loans the processing fees are typically 1-3% which is huge You can easily skip paying the processing fees if you negotiate hard with the bank.
- Disbursal time – Nowadays most loans are disbursed in seconds and you get your money in your bank account instantly. When you apply for the loan check with the bank as how you will receive the money and how much time it will take to get the money.
- Other charges – Please clarify with banks about other charges while you take the loan. Some banks charge a lot for silly things like late payments/ cheque bounce etc.
- Pre-Closure charges – It’s human nature to close your loans when you have money in hand. You need to watch out for any pre-closure charges that are applicable to your loan. If there are charges then ask your bank to waive them off.
Consider reading – How to get out of debt in 5 steps
FAQ on Personal loan
Which bank offers the best interest rate for personal loans in India?
As of May 2022; IDBI Bank offers the lowest interest rate of 8.55% in India.
How can I get a good interest rate?
To get the best interest rate for your personal loan you must have a good CIBIL score > 800 and no loan defaults.
What are some of the other fees and charges levied by banks while taking a personal loan?
Some of the most common fees and charges levied by banks while taking a loan are –
Processing charges – for processing your application
Verification charges – for verifying your background and other parameters
Government taxes – for example, GST
Late payment fees – if you don’t pay your EMIs on time
Prepayment fees – if you want to prepay a part of your loan
Foreclosure fees – if you want to close your loan ahead of schedule
Should I go for pre-closure of my personal loan?
You need to be extremely careful while thinking about pre-closing your personal loan. Most of the lenders charge heavy interest amounts in the initial EMIs. For example, if you take a personal loan for 2 years, the Bulk interest payment will happen via the EMIs of the first year. So if you think of pre-closing the personal loan after a year then it may not benefit you as you have already paid the interest amount.
While pre-closing the personal loan always check how much principal and interest you are paying while doing the pre-closure. If you are only paying back the principal amount then it is not beneficial for you to pre-close the loan.
What is the difference between a personal loan and a credit card loan? which one should you take?
Credit card loans are the loans that you take when you have a credit card and you are unable to pay back the amount on the card. Normally credit card loans are charged around 36-40% interest rate per annum.
Personal loans are different to credit card loans. You need to apply for a loan and re-pay them as per the payment terms. Normally these loans are charged at a 9-16% interest rate per annum.
It is always preferable to take a personal loan against credit card loans as they carry lesser interest rates.
What precautions you should take while taking personal loans?
With the rise of fintech companies, we have seen the market is flooded with many attractive personal loan offers with few companies claiming to disburse the loan amount in seconds.
While it's tempting to get the money quickly, you must practice caution in applying for too many personal loans as the interest charged by these companies is way higher than normal conventional banks. Always read the terms and conditions carefully while applying for any loans.