Debt has become an essential part of our life. Whether it is for professional, business or personal reasons, there is a constant need to meet financial requirements which makes loans such an invaluable necessity.
Personal loans are a type of unsecured loans that are collateral free. The interest rate on a personal loan taken is the most important factor that determines the overall loan cost. As such, offering lower interest means lower EMIs and lower interest payments during the tenure of the loan. Let's check out the top 10 banks in India that offer personal loans at the lowest interest rates in 2021.
Top 10 Banks Offering Lowest Personal Loan Interest Rates in India
|
Bank |
Rate of Interest (p.a.) |
Loan Amount (Rs.) |
EMI/per lakhs (1 year) |
|
Starts from 8.45% |
Up to 10 lakhs |
8,720 |
|
|
Starts from 8.45% |
Up to 20 lakhs |
8,720 |
|
|
Starts from 8.90% |
Up to 15 lakhs |
8,741 |
|
|
Punjab National Bank |
Starts from 8.95% |
25,000 to 15 lakhs |
8,743 |
|
Indian Bank |
Starts from 9.05% |
As per the applicant’s profile |
8,747 |
|
Starts from 9.35% |
Up to 10 lakhs |
8,761 |
|
|
Starts from 9.50% |
25,000 to 5 lakhs |
8,768 |
|
|
Starts from 9.55% |
Up to 20 lakhs |
8,771 |
|
|
State Bank of India |
Starts from 9.60% |
Up to 20 lakhs |
8,773 |
|
Starts from 9.75% |
Up to 30 lakhs |
8,780 |
Factors Affecting Personal Loan Interest Rates
Income
• The income of the applicant is taken into account while computing the personal loan interest rate.
• Fixed income yields lower interest rates and vice versa.
employer details
• Working with a reputed employer/organization requires lower interest rate as banks consider such applicants as low risk category.
type of employment
• Various interest rates are offered to salaried or self-employed individuals.
Ages
• The applicant's age is an important consideration while determining eligibility for the loan.
• Applicants approaching retirement age may be charged higher interest rates and lower interest rates may be charged from those who have stable income and are of middle age.
relationship with the lending bank
• Relationship with the lender goes a long way in deciding the interest rate.
• Customers having a good relationship with the lender get personal loans at low interest rates.
• Existing customers with a good loan repayment record with the bank tend to favor banks for availing personal loans at lower interest rates.
Credit history and credit score
• Credit history based on credit report and credit score are important criteria for a lender to consider before giving any loan.
• Credit score reflects the creditworthiness of the applicant.
• Credit history reflects the applicant's past financial prudence in timely repayment of the loan.
• High credit score increases the chances for the applicant to get a personal loan approved at a lower interest rate and vice versa.
Fixed Liability to Income Ratio (FOIR)
• The amount of income used each month to pay off the applicant's EMI and credit card dues is important to evaluate the applicant's personal loan application process.
• FOIR means the ratio of the current loan EMI and credit card balance to the applicant
monthly income.
• A FOIR > 50%, is considered by lenders as a risk factor that can affect an applicant's loan eligibility and subsequent rate of interest for a personal loan.
credit utilization ratio
• Credit utilization ratio is the ratio of credit utilized against total available credit.
• Low credit utilization ratio means less dependence on credit and higher repayment capacity.
• High credit utilization by the applicant is considered by the lenders to be highly dependent on the loan making such applicants a high risk category for potential loan repayments on time.
• Top banks in India that offer the lowest personal loan interest rates expect the credit utilization ratio of loan applicants to be less than 30% to 40%.
multiple loans
• Avoid taking multiple loans with multiple lenders in a short time period, as too much debt affects your personal loan eligibility. The interest rates are high even when approved.
• Having too many loans means that the chances of loan default are increasing, considering applicants desperate for loans.
• Multiple loans can negatively affect your credit score and your chances of getting a personal loan at a lower interest rate.
Conclusion
Various factors affect interest rates on personal loans. Make sure you are aware of the requirements to avail low interest rates on personal loans. Also, compare the interest rates of different banks to find the right lender that offers you the best deal.
questions to ask
1. How is the processing fee calculated for personal loans?
The processing fee charged on a personal loan varies from lender to lender. As a general rule, processing fee is calculated either as a percentage of the total loan amount applied by the applicant or as a fixed fee set by the lender.
2. Is it always a good idea to opt for a personal loan with a low interest rate?
The interest on your personal loan is related to the cost of your loan amount. As such, it is a significant component of your borrowing costs, meaning that higher interest costs drive up the overall cost of the loan. Hence, it is better to go for a personal loan with a lower interest rate. However, be aware of other charges levied by the lender on personal loan applications.
3. Can I get a personal loan at a low interest rate even with a low credit score?
Yes. It is possible to get a personal loan at a low interest rate even with a low credit score. For this you need to ensure that you get a co-applicant with a good credit score or a guarantor with a good credit history who will support you. If you have a good relationship with the lender, it can also help you get a personal loan at a lower interest rate but this criterion is exclusively at the discretion of the lender.
4. Will offering collateral provide me the loan interest rate for the personal loan?
If you offer collateral while availing a personal loan, you can get a loan at a lower interest rate. Based on your level of risk and the value of the given collateral, banks will determine the loan amount and interest rate. Offering collateral assures the bank that they have protection against any possible non-repayment of the loan. However, non-repayment could mean that the lender can take your collateral.
5. Will I get a lower rate personal loan if I choose my existing lender?
Yes, if you have built a good relationship with your existing lender, your chances of getting a personal loan at a low interest rate increase significantly.
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