The decision to take a personal loan is challenging. But getting an attractive interest rate to can help smoothen the decision making process. The current market interest rates range between 8.75% to 13% in banks and reputed financial institutions in India.
You can calculate the interest rate for a personal loan using a simple formula. Total accrued amount = Principal Amount * (1 + rate of interest x number of years) For example, if you’ve borrowed a principal of ₹15,000 at a 9.1% interest rate for 2.5 years, then your total accrued amount is: ₹15,000 x (1+0.091×2.5) = ₹18,412.50
Alternatively, you can use a pre-designed calculator to work out your EMI per month. Interested to learn the factors that decide a bank’s interest rate on a personal loan? Keep reading!
The Expected Interest Rates: Attractive or Repulsive?
Loan providers prefer to lend money at low-interest rates to trusted customers who have a history of making regular payments.
So, don’t be surprised when you notice loan providers going as low as 8.75% and as high as 49.5% on the interest rate for personal loans depending on the borrower’s creditworthiness.
While these estimated figures might seem higher than that of secured loans, the risks associated with personal loans largely justify the interest rates. For instance, personal loans are mainly used to address an emergency and are provided without collateral. So, loan providers look to make the most of this flexibility by charging relatively higher interest rates.
The Secret Behind Calculation of Interest Rates
Every time a bank offers a personal loan to you or accepts your loan request, they will offer you two interest rate models – fixed and fluctuating.
When you opt for fluctuating interest rates, the market movement decides the percentage of your interest. Granted, you could be paying high rates in several instances. But the low rates in other instances more than makeup for this discrepancy.
Regardless of the model you choose, you will notice that banks will analyse the following documents before deciding your rate of interest.
- Credit score (on a scale from 300 – 850, the higher, the better)
- The income per annum (depends on the loan amount needed)
- Debt-to-income ratio (the amount of your salary that goes towards monthly bills and other obligations)
- Age (the younger you are, the longer the duration of repayment)
If you fulfil all these criteria, you might be convinced to ask what is the current interest rate on a personal loan to get a better idea of the market rates at the moment. The current interest rates are more in the vicinity of 10%, but you can negotiate if you have a strong credit score and a high income.
Get Personal Loans with Competitive Interest Rates
Personal loans are great when you need immediate liquid funds. However, given the high interest rates and stipulated deadlines every month, the repayment of these loans can easily cause undue financial stress. To avoid such problems, it is vital to create a monthly budget to maintain financial discipline and complete the payments before the monthly deadline.
Eager to get a personal loan without much hassle? You can get an instant loan directly to your Savings Account through the Fi Money app. The best part? This process is 100% paperless and boasts competitive interest rates. Stay in charge of your loans with a transparent borrowing process
Different financial institutions offer different rates on different types of personal loans . Given that there are no limitations on how they can be used, personal loans are among the most flexible financing options. However, they’re also on the higher side when it comes to interest rates, so as a borrower, you need to ensure that you’re able to repay the amount you borrow before you apply for a personal loan.
How is the interest rate on a personal loan determined?
Interest is a fee levied on the borrower for the loan amount issued. The interest rate could be viewed as the ‘cost of money’ because it is a fee you are paying to get money that you don’t yet have.
Interest is levied based on risk or creditworthiness
When the lender determines that the borrower poses a minimal risk, the interest rate is reduced. The cost of the loan will increase if the borrower is judged to be high-risk.
Evaluating a personal loan
Personal loan interest rates range anywhere between 7.90% to 49% per annum!
Typically, a good personal loan interest rate will be less than the national average individual loan interest rate. That average can change over time because interest rates might differ depending on a number of variables, including economic conditions.
Consider the following comparisons while evaluating offers:
- Annual Percentage Rate: APR reflects the overall cost of your loan and includes both your interest rate and fees. When doing a price comparison, it’s perhaps the most crucial piece of information.
- Loan tenure: This indicates the duration to pay off the loan or how many instalment payments there will be. Shorter loan terms frequently result in lower APRs.
- Fees: Be aware of each lender’s origination, late, and other fees.
- Monthly payments: Understanding your monthly payment and whether it fits within your present budget is crucial given the APR and loan tenure. Take the help of EMI calculators to get clarity on how much you need to pay every month.
- Discounts: You may get a loan from a financial institution where you already have other accounts or set up automated payments to lower your rate.
Factors that affect your personal loan interest rate
Interest rates for personal loans vary across borrowers and lenders. Several lenders provide personal loans at various interest rates depending on your creditworthiness. A good CIBIL score typically entitles you to low-interest loans.
Lenders take a number of factors into account when setting personal loan interest rates. You can play this to your advantage by improving the factors influencing interest rates.
Personal loan providers base their interest rates on risk, which means they will consider your likelihood of defaulting on the debt while setting your rate. Here are some factors considered:
Income
A high-risk borrower is more likely to miss payments on a personal loan. Your capability to pay back the loan in time is ensured to the lender by studying your monthly income.
If you’re self-employed, then your IT returns will be required as proof to check your repaying ability.
CIBIL score
Your CIBIL score is one of the most crucial elements that define your creditworthiness. Lenders check your CIBIL score before deciding on the terms of your loan.
Repayment history
Lenders will view your credit profile as low-risk for any new loan, including a personal loan if you have a strong payback history.
Additionally, this demonstrates sound money management, which boosts your trustworthiness. You may use personal loan EMI calculator to work out if you’ll be able to pay back the EMIs on your loan.
Economic conditions and other market factors
The cost of your loan is impacted by a number of factors, including inflation, the economy, repo rates, and more. Lenders charge greater personal loan rates during inflation than they do during a recession.
Lower interest rates are also a result of low repo rates. Even if you have no influence over them, you can try to take advantage of them by borrowing money when interest rates are low.
Past association with the lender
If you’ve borrowed from the lender before, they might provide you with a personal loan with favourable interest rates.
Want to read up more? Here’s a short guide on choosing an interest rate that works for you and your money.
Summary
Getting personal loans at good interest rates are subject to a range of factors from your credit score, your monthly income, repayment behaviour and macroeconomic conditions. You can get an instant loan directly to your Savings Account through the Fi Money app. These are pre-approved personal loans made available to select users with good credit scores. On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Plus, you can avoid EMI late fees by setting up automatic in-app payments. Our partner bank, Federal Bank, assigns an eligible loan amount to each user (up to ₹5 lakh).
Federal Bank has partnered with epiFi Technologies Private Limited to source Federal Bank Digital Personal Loans on Fi Money Mobile Application. This partnership allows customers to easily apply for Federal Bank personal loans directly through the Fi Money mobile app, thereby facilitating a seamless, efficient, and user-friendly borrowing experience.
Know more about personal loans offered by Federal Bank on Fi Money.
| Interest Rates12% p.a. – 16.5% p.a. | Loan Amount ₹ 50K – ₹ 5 Lakh | Pre-closure / Pre-Payment charges.3% of Outstanding Amount + 18% GST | Loan Tenure12-48 Months |
Fulfil your financial obligation with a Federal Bank Personal Loan, now available on Fi Money. You can instantly borrow amounts upto ₹5 Lakhs through an end-to-end digital application journey for a Federal Bank Personal Loan on the Fi Money App/Website. Get great benefits like competitive interest rates starting from 12.00% p.a., tenures of up to 48 months, low processing fees and more with a Federal Bank Personal Loan.
Features & Benefits
Digital Customer Onboarding Journey
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Easy Documentation
With the completely digital application procedure, the documentation process is very convenient and hassle-free.
Low Processing Fees
Get Federal Bank Personal Loans at Processing Fees starting from 2%.
Attractive Interest Rates
Get Federal Bank Personal Loans at attractive interest rates starting from 12.00% p.a.
Flexible Loan Tenure
Avail Federal Bank Personal Loan within tenures ranging from 12 months to 48 months.
No Hidden Fee/Charges
All Fees and Charges mentioned in the Key fact Statement (KFS) shared with the customer on Loan execution.
