Why are Personal Loan Rates So High?
Last Updated : April 13, 2020, 5:11 p.m.
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 Lenders | Interest Rate (In Per Annum) | Processing Fee (IN INR) |
|---|---|---|
| State Bank of India (SBI) | 11.00% - 14.00% | 1.50% of the loan amount Minimum Fee - 1,000 Maximum Fee - 15,000 |
| Bank of Baroda | 10.90% - 18.25% | 2% of the loan amount Minimum Fee - 1,000 Maximum Fee - 10,000 |
| Bank of India | 10.35% - 14.85% | 2% of the loan amount |
| Canara Bank | 11.75% - 16.25% | 0.50% of the loan amount Minimum Fee - 1,000 Maximum Fee - 5,000 |
| Indian Bank | 10.00% - 15.00% | 0.512% of the loan amount, subject to a minimum of 512 |
| Indian Overseas Bank | 10.80% | 0.50%-0.75% of the loan amount |
| Union Bank of India | 11.80% - 15.50% | 0.50% of the loan amount, subject to a minimum of 500 |
Personal Loan Interest Rates of Top Private Lenders
| Private Lenders | Interest Rate (In Per Annum) | Processing Fee (IN INR) |
|---|---|---|
| HDFC Bank | 10.75% - 14.50% | NIL-2.50% of the loan amount |
| ICICI Bank | 10.75% - 19.00% | 999-2.25% of the loan amount |
| Kotak Mahindra Bank | 10.99% Onwards | 0.99%-2.50% of the loan amount |
| Bajaj Finserv | 11.00% Onwards | Upto 3% of the loan amount |
| SMFG India Credit | 11.99% Onwards | 2% of the loan amount |
| IndusInd Bank | 10.25% - 26.00% | 1%-3% of the loan amount |
| Axis Bank | 10.49% - 21.00% | 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 Aspects | Details |
|---|---|
| Loan Amount | INR 5,00,000 |
| Tenure | 5 Years |
| Lender’s Original Interest Rate Offer | 16% |
| Negotiated Interest Rate | 13% |
| EMI Payable on Lender’s Original Interest Rate Offer | INR 12,159 |
| EMI Payable on Negotiated Interest Rate Offer | INR 11,377 |
| Interest Payable on Lender’s Original Interest Rate Offer | INR 2,29,542 |
| Interest Payable on Negotiated Interest Rate Offer | INR 1,82,592 |
| Savings in EMI on a Negotiated Interest Rate Offer | INR 782 |
| Savings in Interest on a Negotiated Interest Rate Offer | INR 46,950 |
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.