Things to do Before Choosing a Personal Loan Interest Rate Deal
Last Updated : Nov. 5, 2020, 7:34 p.m.
When taking a personal loan, the first thing one considers is the interest rate he/she is likely to get for the same. It’s a valid concern given that the personal loan interest rate will most likely be in the double-digit. Currently, personal loan rates can range from 10-20% per annum. Such higher rates are due to the absence of collateral in this loan. The loan is based mostly on your income, occupation and credit score.
But there are ways by which you can get a lower interest rate. All it requires is smart planning and being aware of what’s happening around in personal loans. We are here to tell you that. Let’s read further and plan your loan journey accordingly.
Check the Personal Loan Interest Rate of Lenders First
All your planning rests with the personal loan interest rate that exists at various lenders. Knowing the same will help you compare and choose a reasonable interest rate, if not the best one. With that, you can pay the EMI easily and have less burden on your budget. The interest rate affects the EMI amount directly; the higher the interest rate, the greater the EMI amount and vice versa. Let’s check the interest rate of different lenders without any further delay.
| Lenders | Interest rates (In Per Annum) |
|---|---|
| HDFC Bank | 10.75% - 14.50% |
| ICICI Bank | 10.75% - 19.00% |
| State Bank of India (SBI) | 10.75% - 19.00% |
| Bajaj Finserv | 11.00% Onwards |
| Kotak Mahindra Bank | 10.99% Onwards |
| Axis Bank | 10.49% - 21.00% |
| YES BANK | 11.05% - 20.25% |
| IDFC First Bank | 10.50% - 25% |
Negotiate for a Better Personal Loan Interest Rate Based on Your Profile
The table above shows the personal loan interest rate range for different lenders. You could see a gap between the lowest and highest limit of the range. Now that gap could be due to the variation in customer profiles according to the difference in the loan amount sought, his/her income and credit score, etc.
Usually, interest rates are lower when the personal loan quantum is higher. But that will also depend on how good your income and credit score are. If you are earning good and have a credit score of more than 750, you can negotiate for a lower rate and can get the same too.
For instance, if you are applying for a personal loan of INR 15 lakh or more at HDFC Bank, the interest rate can drop to 10.50% per annum. The same interest rate applies when you have a monthly income of INR 50,000 or more and apply for a loan of INR 10 lakh or more. It only reinforces our point of introspecting more on the interest rate front.
Do Your Personal Loan Repayment Calculation in Advance
Getting the right interest rate will also depend on knowing beforehand the likely repayment scenario for you. We have already mentioned the personal loan interest rate range of different lenders above. So, experiment with different interest rates and choose the repayment estimate that suits your budget. You may not exactly get the rate you look for, but negotiate for a rate somewhere around that mark. Your healthy income and good credit score will help you get so.
But How to Calculate Different Personal Loan Repayment Estimates?
Use the Personal Loan EMI Calculator online to find different repayment estimates. All you need to do is enter the loan amount, interest rate and tenure at their respective spaces in the calculator. Once done, you will see the Equated Monthly Installment (EMI) and overall interest outgo.
The rate you choose should ensure affordable EMIs while also keeping the interest outflow in check. In case the EMI is affordable but the overall interest payment seems a bit high, you can cut short your tenure by a year or so. It will reduce your interest payment but will raise the EMI amount in return. So, you should earn enough to accommodate the hike.
Personal Loan Interest Rates Can Rise with Higher Existing Debt Obligations
Lenders not only check the credit score of applicants but also the amount of debt they owe. For instance, you are paying your credit card bills on time and your credit score stands at 780, which is considered a good one. But you are paying the bill partly, which is allowed in a credit card. In case you have revolved the credit card debt by a reasonably high amount, the personal loan interest rate can go up. So, if you have the savings to clear your credit card bills fully or partly, do that ASAP. It will make lenders ease the rate and reduce your obligations.
What Personal Loan Interest Rate Should You Choose When Going for a Balance Transfer?
If you are paying personal loan EMIs at a higher interest rate, there’s a respite for you with a balance transfer! It’s a process by which you can transfer your existing loan to another lender at a lower rate of interest. But how much should the interest rate be lower than the present one?
The new rate of interest should be at least 5-6% lower. The reason being the new lender where you would switch your loan to will ask for a balance transfer fee, which could be a flat amount or a certain percentage of the transferred balance amount. Let’s consider an example to understand the point better.
Example – Sameer and Vatsal are paying a personal loan of INR 7,50,000 for the last 2 years at an interest rate of 17% per annum. The loan has another 3 years to go from now. But Sameer is getting a personal loan balance transfer offer from the new lender at 14%. Whereas Vatsal gets an interest rate of 12% on a balance transfer. Let’s check out the repayment estimate for both of them after their respective balance transfers.
| Repayment Estimates | Sameer | Vatsal |
|---|---|---|
| EMI Payable at 17% | INR 18,639 | INR 18,639 |
| Interest Payable at 17% | INR 3,68,366 | INR 3,68,366 |
| Interest Paid Till Now | INR 2,20,151 | INR 2,20,151 |
| Outstanding Balance After 2 Years | INR 5,22,805 | INR 5,22,805 |
| EMI Payable at 14% After a Balance Transfer | INR 17,868 | - |
| Interest Payable at 14% After a Balance Transfer | INR 1,20,451 | - |
| EMI Payable at 12% After a Balance Transfer | - | INR 17,365 |
| Interest Payable at 12% After a Balance Transfer | - | INR 1,02,321 |
| Interest Paid Till Now + Interest Payable After a Balance Transfer | INR 3,40,602 | INR 3,22,472 |
| Savings | INR 27,764 (3,68,366-3,40,602) | INR 45,894 (3,68,366-3,22,472) |
If the new lender charges a balance transfer fee of 1.50% of the transferred balance plus 18% Goods and Services Tax (GST), the amount comes as INR 6,477.55. Factoring in the fee will reduce the saving of both Sameer and Vatsal. But Vatsal will still have reasonably good savings after a balance transfer courtesy a much lower interest rate.