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Why are Personal Loan Rates So High?

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Highlights

  • Personal loan rates are easing, but still the highest rate hovers around a steep 25%-30%
  • This calls for negotiation, how will you do so? Read this & negotiate better!

The reason is simple – personal loans can be accessed without having to submit any collateral, leaving lenders with a greater degree of credit risk. This makes lenders charge a greater rate of interest on personal loans. But now, even personal loan rates have eased considerably, largely following the rate reductions that secured loans like home loans have seen. Having said that, the top limit of interest rate is still quite high at 25% to 30%. This makes it vital to compare personal loan interest rates and choose the best option. To help you compare the rates better, we have put the interest rates of different lenders. Check and choose the best one for you.

Personal Loan Interest Rates of Top PSU Lenders

PSU LendersInterest Rate (In Per Annum)Processing Fee (IN INR)
State Bank of India (SBI)9.60% - 13.60%1.50% of the loan amount

Minimum Fee - 1,000

Maximum Fee - 15,000
Bank of Baroda10.25% - 15.60%2% of the loan amount

Minimum Fee - 1,000

Maximum Fee - 10,000
Bank of India9.35% - 12.35%2% of the loan amount
Canara Bank11.25% - 13.90%0.50% of the loan amount

Minimum Fee - 1,000

Maximum Fee - 5,000
Indian Bank9.20% - 13.65%0.512% of the loan amount, subject to a minimum of 512
Indian Overseas Bank12.45%0.50%-0.75% of the loan amount
Union Bank of India9.30% - 13.40%0.50% of the loan amount, subject to a minimum of 500
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Personal Loan Interest Rates of Top Private Lenders

Private LendersInterest Rate (In Per Annum)Processing Fee (IN INR)
HDFC Bank10.75% - 21.30%NIL-2.50% of the loan amount
ICICI Bank10.75% - 18.49%999-2.25% of the loan amount
Kotak Mahindra Bank10.75% - 17.99%0.99%-2.50% of the loan amount
Bajaj Finserv10.99% - 16.00%Upto 3% of the loan amount
Fullerton India14.00% - 24.00%2% of the loan amount
IndusInd Bank11.00% Onwards1%-3% of the loan amount
Axis Bank12.00% - 24.00%1.50%-2% of the loan amount

Note – The processing fee will also include Goods and Services Tax (GST), which presently stands at 18%, for loans at both PSU and private lenders.

Why Should You Negotiate for Lower Interest Rates on a Personal Loan?

Lower interest rates will mean a lower Equated Monthly Installment (EMI), helping you repay comfortably and reducing your interest obligations at the same time. If you get the rate reduced by 2%-3% through negotiation, it would mean quite a reduction in both interest and EMI obligations. Consider an example below to understand it better.

Example – You want a personal loan of INR 5 Lakh for 5 years. The bank is offering you the same at 16% per annum. But, if you get the rate reduced to 13% per annum, how will it reflect on your repayment?

Loan Repayment AspectsDetails
Loan AmountINR 5,00,000
Tenure5 Years
Lender’s Original Interest Rate Offer16%
Negotiated Interest Rate13%
EMI Payable on Lender’s Original Interest Rate OfferINR 12,159
EMI Payable on Negotiated Interest Rate OfferINR 11,377
Interest Payable on Lender’s Original Interest Rate OfferINR 2,29,542
Interest Payable on Negotiated Interest Rate OfferINR 1,82,592
Savings in EMI on a Negotiated Interest Rate OfferINR 782
Savings in Interest on a Negotiated Interest Rate OfferINR 46,950
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How Can You Negotiate for a Lower Interest Rate Offer?

The success of the negotiation will depend mostly on your income, existing relationship with the lender and credit score. A greater income gives you more room for repayment, which can so easily convince the lender to decrease interest rates on your loan. The existing relationship with the lender be it through advances or deposits must have given the lender an idea of the borrower in you. If you’ve had a good and smooth relationship, the lender can reduce the rate. But it’s the credit score that eventually decides the price of the loan. A good credit score of 750 and above can make it happen for you.

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Personal Loan Interest Rates September 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.75% - 18.49%
IndusInd Bank11.25%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.00% - 15.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates September 2020
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%
Citibank8.20%
HDFC6.95% - 8.00%
ICICI Bank6.95% - 8.05%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank7.20% - 9.30%
LIC Housing6.90% - 7.90%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance8.60% - 9.45%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI6.95% - 7.60%
Tata Capital9.20% - 9.35%