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Personal Loan issuers in India

What Is a personal loan?

Everyone could do with a little credit in the form of a personal loan at some point or other in life. A personal loan can come to your rescue in difficult times like a financial shortfall. You can fulfil your financial obligations without worry with the help of a personal loan. There are no restrictions on how you should spend the loan amount. You have the freedom to use the money in any way you want, as long as it’s legitimate.

When taking any loan, interest rate plays a crucial factor in determining the loan terms. It is the major concern for the borrower as even a slight reduction in the rate can save a lot of money in repayment. As a personal loan is an unsecured loan, the rate of the interest tends to be higher than the other loans. However, one can get a personal loan at better terms with a good credit profile and income stability.

How does a personal loan work?

A personal loan is an 'unsecured loan', meaning you are not required to provide any security to the lender in the form of cash, shares or any other assets. This might make it more attractive to some customers who may not be able to provide any asset as collateral. Unlike many other kinds of loan, there is no restriction on how the borrowed amount is used – the borrower has full freedom to use the money for any purpose they want.

Since a personal loan is a no-collateral loan, lenders - in an attempt to safeguard their money - will offer it at a higher interest rate. Therefore, personal loans are one of the costliest loans in the retail market. Personal loan interest rates are generally on the higher side compared to other consumer loans.

Interest Rates on Personal Loans

The disadvantage of a personal loan is the higher interest rate when compared to other loans. It could range anywhere from 10.75% to as high as 32% per annum. Since the lenders do not have any security against payment default, they charge high interest rates to cover their lending risk. Following are the interest rates of some of the popular banks in the country.

Bank Interest Rate (Onwards)
HDFC Bank10.99%
RBL bank14.05%
Bajaj Finserv12.99%
Kotak Mahindra Bank10.99%
IndusInd Bank11.25%
ICICI Bank11.25%
YES BANK10.75%
Indian Overseas Bank12.55%
Axis Bank15.75%

Note: The above interest rates and other charges are subject to periodic review. The final pricing, while remaining within the range mentioned above, will be based on your income, loan amount, loan tenure, the bank’s internal policies and the applicable rates at the specific time.

Factors that influence interest rate on Personal Loans

Personal loans incur the highest interest rates since they are 'unsecured', and the bank/NBFC has no safeguard against default. The interest rate on a personal loan is influenced by a few factors including the following:

Loan amount compared to your annual income: If your loan amount is a small percentage of your annual income, then your interest rate will tend to be lower. On the other hand, if your loan amount is a high percentage of your annual income, lenders might not be confident about your ability to repay and might insist on a higher interest rate on the loan.

Credit Score: Since this is an unsecured loan, lenders would want to know about your past repayment behaviour in order to evaluate your ability and willingness to pay. In general, the higher your credit score, the better the interest rate you will get. A good credit score means you are responsible with credit.

Debt to income ratio: If you have too many current loan obligations, potential lenders might be nervous about your ability to take on more repayments with your existing income.

Personal Loan interest rates comparison

Whether you are thinking about getting a personal loan or are shopping for personal loans, the most important and deciding factor is the personal loan interest rate. It becomes important to compare different features of a personal loan before zeroing in on one.

As mentioned before, in order to land the best deal on a personal loan, you need to make sure you have a healthy credit score. A credit score of 750 and above would ensure you the lowest interest rate for personal loan.

Once you ensure you have a good credit score, you can use an online personal loan comparison website in order to compare various personal loan offers. Don’t just rely on one site for comparison. Go to several trustworthy websites and do a basic search and comparison.

If you are an existing customer of a bank and have a good relationship with them, then they would be your first choice since they might be willing to offer you a good rate. However, you can also check and compare the rates of multiple lenders to choose the lowest rate of interest. Some NBFCs might offer you better rate to increase their customer base.

Before you decide on a personal loan, do your homework thoroughly so that your application is not rejected. It is helpful to use a personal loan interest calculator, which can help you to compute the amount you pay towards your EMIs and help with your personal budgeting. You only need to input the loan amount, tenure and the interest rate on personal loan. Once you have a good idea of the various offers, you can judge which offer suits your financial situation and requirements the best.

Personal Loan Amount

Personal loans are short-term loans and the tenure can range from 1-5 years. The personal loan amount can range from few thousands to many lakhs of rupees. While applying for a personal loan, the amount that you apply for must be proportionate with your income which reflects your ability to make repayments. Of course, the final loan amount that is approved depends on the lending criteria used by the lender and how they evaluate your ability and willingness to repay the loan.

Choosing your Personal Loan

Keep in mind that taking out a personal loan comes with its own set of financial obligations and you should not take it in haste. Only if you need money quickly and for a relatively short term—and you have a plan on how to repay it—can a personal loan be a good option for you.

The loan disbursal process is relatively quicker than for most other loans since you do not have to provide documentation for the purpose the loan amount will be used for. Also, the loan application is processed quickly because of the reduced documentation.

How to apply for low interest Personal Loan

There are several ways you can apply for a loan. You can either apply directly online at the lenders’ website or you can go in person to the branch to apply for a loan; go through online comparison websites or you can contact a direct sales agent.

If you want to apply for a personal loan suited to your budget and needs, CreditMantri can match you with the most suitable loan offer for you on the market, best suited to your credit profile.

Personal Loan Interest Rate FAQs

1. What is the minimum interest rate that the lenders charge on a personal loan?

The interest rate on a personal loan varies from bank to bank. Some lenders offer personal loan from 10.75% onwards. However, this is subject to your loan amount, income stability and credit profile.

2. What is the maximum interest rate that the banks provide to the borrowers?

The individuals with poor credit score might become eligible for high interest rate loans which could be as high as 32%.

3. Does having a good credit score lowers interest rate on a personal loan?

Yes, having a good credit score gives you the bargaining power to negotiate with the lender.

4. What is lowest income one should have to get a personal loan?

Different lenders have different criteria in terms of income stability. The lowest amount can range between Rs.5000 to Rs. 10,000.

5. When will the interest rate on the personal loan be informed to the borrower?

After you have submitted all the documents, the lender will process your loan. If the loan is approved, you will be informed about the interest rate up front before the disbursal.

Personal Loan Interest Rate - Customer Reviews

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29 Oct 2020

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