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Personal Loan Interest Rates & Charges

What is the Interest Rate on a Personal Loan?

 The interest rate on a personal loan determines the amount you need to repay as Equated Monthly Instalments (EMIs) against your loan. Personal loan interest rates are subject to fluctuations. Besides, the rates can vary for each borrower depending on factors like your CIBIL score, income, repayment capability, the amount being borrowed, loan tenure, employer’s reputation, employment nature, financial history, debt-to-income ratio, and other personal loan eligibility criteria.

The more attractive interest rates you receive, the smaller EMI you are required to pay. With Tata Capital, you can get competitive and affordable interest on personal loans. Our interest rates are one of the lowest in the industry, starting at just 10.99%.  

What are the current Personal Loan interest rate?

 Interest rates on a personal loan can typically vary anywhere between 10.50% and 24% based on how you fulfil the personal loan eligibility requirements of the financial institution. However, due to the pandemic-induced economic slowdown, personal loan interest rates have dropped low. Let us understand why.

In response to the countrywide financial crisis, the Reserve Bank of India (RBI) slashed the repo rate by 40 basis points, keeping it at 4%. Here, the repo rate represents the rate at which the central bank lends money to banks and NBFCs. Whenever RBI cuts down the repo rate, the costs at which financial institutions borrow reduce, translating into lower personal loan rates for borrowers.

Why are Interest Rates on Personal Loans so Important?

 The interest on personal loan is a significant factor to be taken into consideration because it determines the total cost of the loan. Let’s see how.

Every loan EMI comprises two components- the principal and the interest. If your total interest amount is high, it will directly increase your total sum payable.

That’s because the personal loan EMI you need to pay for repaying your principal amount over the decided loan tenure is governed by the latest personal loan interest rates applicable. Here, a lower rate will reduce your overall interest payout, thereby requiring you to pay smaller EMIs to the lender over the loan tenure.

How is Your Personal Loan Interest Rate Calculated?

 The personal loan interest is calculated using - flat rate and reducing balance method.

In the flat rate method, the interest paid remains fixed. The total interest payable is calculated on the loan amount borrowed throughout the loan tenure. Hence, the personal loan rates stay constant and don’t lessen even when the principal amount reduces as you pay your monthly instalments.

Contrarily, in the reducing balance method, the interest rate is calculated on the outstanding balance amount, which decreases every time you pay an EMI.

The mathematical formulae for interest on personal loan calculation are as follows:

Flat Rate

EMI = (Principal + total interest payable) / loan tenure in months)

Here, Total Interest Payable = Principal x Personal Loan Rate x Loan Tenure/100

Reducing Balance Method

EMI= [P x R x (1+R)^N]/[(1+R)^ (N-1)]

Where P = Principal Amount

N = Loan Tenure in months

R = Rate of Interest

What are the Factors Affecting Personal Loan Interest Rates?

 The following factors can impact your latest personal loan interest rates.

  • CIBIL score

Your CIBIL score that reflects your repayment capability plays a decisive role in securing low interest personal loans. With an excellent CIBIL rating, you can get more attractive interest rates.

  • Repayment history

Besides your CIBIL score, the lender also reviews your past credit record to determine your current personal loan interest rates. A clean credit history with no EMI defaults and disciplined payments is preferred.

  • Income

Your income significantly determines your personal loan rates. If you belong to the high-income bracket, the lender perceives you as more likely to timely repay the loan and extends more competitive interest rates.

  • Employer’s reputation

The latest personal loan interest rates that the lender offers you also depends on your employer’s reputation. If you work with a credible organisation, the lender considers you less likely to default on EMIs and offers more attractive rates.

  • Debt-to-income ratio

If you are servicing multiple loans and credit cards, and your debt burden eats up a significant portion of your monthly income, the lender can consider you a high-risk borrower. It can impact the personal loan interest rates you will qualify for.

What are Fixed and Floating Personal Loan Interest Rates?

Fixed interest rate

In fixed rate loans, lenders charge you a constant personal loan rate throughout the tenure. Here, your total interest payable and EMIs remain fixed.

Floating interest rate

Floating or variable personal loan interest rates are susceptible to fluctuating economic conditions. Here, you can get low interest personal loans initially, but the lender can revise the rates as per the repo rate. Hence, your interest payable can vary throughout the tenure.

Fixed and floating rates both offer a different set of advantages. While fixed rates keep your EMIs constant, you may pay significantly lower instalments with floating-rate loans. But, if current personal loan interest rates increase suddenly, you run the risk of paying bigger EMIs in future.

Salaried & Self Employed Interest Rate Table

Personal Loan

Salaried Any Amount 10.99%* onwards
Self Employed Any Amount