With the educated working population having grown exponentially in the last few years, banks and lenders offering personal loans in India are practically tripping over themselves to offer applicants the best interest rates and flexible repayment options.
This puts the power to choose in the hands of the common man, as there are a wide range of personal loan products on offer, and shopping around a little bit can get you the best interest rates and loan offers. Some banks entirely cancel the one time processing fee, while some banks will offer reduced EMIs on longer tenures with marginally lower interest rates.
The interest rate the bank decides to give you will be based on a number of factors which, as a whole, determine your capacity to repay and level of stability. The bank needs to establish your credit-worthiness and determine (as much as it can) that its investment in you is safe and will yield a return. It’s up to you to show the bank that you’re an ideal candidate for their personal loan and negotiate with the bank for the best personal loan interest rate. But before the final negotiation stage, there are a range of factors that the bank or lender will take into consideration before deciding on whether it wants to give you a loan, and if it does, what rate to give it to you at.
This article aims at understanding what the factors are that affect personal loan interest rates from major lenders in India. Most of the factors written below can be used as bargaining chips in your favour while negotiating the rate of interest.
- CIBIL score. CIBIL is the Credit Information Bureau of India Limited. It is a databank and rating system that takes into account your performance on all the debt you’ve handled in the past – whether it’s credit card debt or debt on any kind of loan (personal loan, car loan, home loan, etc.). CIBIL takes all your debt-related performance and consolidates it into a numerical score that ranges from 300 – 900. Scores above 750 are considered good and loans are approved for such applicants. But if your score is closer to 900, you have a better chance of getting a better personal loan interest rate than others, or you will at least be able to negotiate for a better rate.
- Income. Lenders don’t approve loans whose EMIs will be more than 50% of your take home salary, per month. The more you earn, the more you’ll be able to pay back in the form of EMIs. And this fact can be used as a bargaining chip in your favour, for you can ask the bank to reduce your interest rate based on the fact that you can repay your loan faster.
- Age. If you’re too young, you’re a risky candidate as young salaried people shift jobs often to exploit opportunities. If a person paying EMIs (these EMIs calculate by Personal Loan EMI Calculator) finds himself out of a job halfway through his loan tenure, finding enough money for food is going to be a priority, not paying EMIs. This will lead to payments being missed and CIBIL score reducing badly. Applicants between the ages of 26 – 40 who’ve been working steadily can negotiate for a better rate of interest, as they’re more stable.
- City of residence. From the point of view of the lender, personal loans are easier to approve in cities like Bangalore, Delhi, Chennai, Mumbai, Kolkata, etc. Merely residing and working in these locations are factors that affect your personal loan interest rate.
- Duration of stay in current location. The longer you’ve been living in a certain place, the higher are the chances of getting a personal loan approved on your terms and at a rate of interest that works for you. Banks like stable applicants, showing the bank that you’ve been in your current residence for over a year instils a sense of comfort in the bank that you won’t abscond, and that you have established a life in that residence, not just live there.
- Employment duration. How long you’ve been working at your current job makes a lot of difference in the rate of interest that will eventually be approved. This is an indicator of stability, and the bank won’t mind making a little less profit from a stable applicant, rather than take the chance of making a slightly larger profit from someone who may default and ask for a settlement.
- Residence type. It’s easier for a person living in a rented place to abscond in case they feel they cannot keep up with EMI payments. Hence, applicants who live in a residence that’s owned by them are more likely to get a better rate of interest on their personal loan, and have it approved on better terms. Also, there’s no part of their income being spent on rent. People living in rented houses must pay an amount of their salary as rent, lowering the disposable income left over to pay EMIs.
- Company in which you work. Strongly established companies with higher operating funds and a larger workforce are preferred, as they are more stable and will not let go of employees easily. Applicants from under-funded start-ups and non-registered companies get higher interest rates, as the bank cannot determine their stability.
The current rates of interest on personal loans from major lenders in India is as follows*:
|Bank||Personal Loan Interest Rate||Type|
|Fullerton||17.25% to 35.00% per annum.||Monthly reducing balance.|
|HDFC Bank||13.00% to 19.00% per annum.||Monthly reducing balance.|
|ICICI Bank||13.99% to 18.00% per annum.||Monthly reducing balance.|
|Standard Chartered Bank||12.99% to 16.50% per annum.||Monthly reducing balance.|
|TATA Capital||13.99% to 19.00% per annum.||Monthly reducing balance.|
|State Bank of India||18.20% per annum||Floating.|
|Axis Bank||15.50% to 24.00% per annum.||Floating.|
|IndusInd Bank||12.99% to 18.25% per annum.||Monthly reducing balance.|
|Citibank||13.99% per annum.||Fixed.|
|Punjab National Bank||13.00% to 16.00% per annum.||Floating.|
|Canara Bank||14.00% to 15.00% per annum.||Floating.|
|Kotak Mahindra||13.00% to 24.00% per annum.||Floating.|
|IBDI Bank||13.00% to 14.00% per annum.||Fixed.|
|Ratnakar Bank||23.00% to 24.00% per annum.||Monthly reducing balance.|
|Capital First||13.00% to 16.00% per annum.||Monthly reducing balance.|
* These are all interest rates as advertised for various types of applicants and can be changed at the sole discretion of the bank. The reason the interest rate has a range between a minimum and maximum percentage amount is because of the various factors that decide and individual’s personal loan interest rate. It is strongly advised to do your due diligence and research by contacting the bank directly for negotiating the best possible interest rate.