How an Interest-Only Loan Works

How an Interest-Only Loan Works

An interest-only loan lets you pay only interest for a set period, then principal and interest. The Bajaj Finance Flexi Hybrid Loan offers interest-only equated monthly instalments (EMIs) for the first 36 months, where applicable.
Loan Types

Loan Types

Calculator

Calculator

FAQs

FAQs

Video

Video

Rs. 40,000 - Rs. 75 lakh

Calculate your EMIs

You may be eligible for a pre-approved offer

Check now

Enter mobile and OTP | Check offer | No branch visit needed

Key Takeways

 
 

In summary

An interest-only loan keeps early EMIs low because you repay no principal at first, but total interest rises. The Flexi Hybrid Loan, a variant of the Bajaj Finance Personal Loan, works this way for up to the first 36 months (3 years).


  • On Rs. 9 lakh at 12.5% per annum, the interest-only EMI is Rs. 9,375 a month.
  • After 36 months, the EMI rises to Rs. 23,922 for the next 48 months (4 years).
  • An 84-month Term Loan costs Rs. 16,129 a month throughout.
  • The Flexi Hybrid route costs Rs. 1,30,910 more in total interest.

Want to compare variants on your own offer? Check your loan offer with your phone number and a one-time password (OTP) → apply online in about 5 minutes → receive funds within 24 hours* of approval.

What is an interest-only loan?

An interest-only loan is a loan where the monthly payment covers only interest for an agreed period, so the principal stays the same. After that period, the EMI covers principal and interest, and it rises.


The interest-only phase does not make the loan cheaper; it moves repayment later. Total interest is higher than on a loan that repays principal from the start.

Show More Show Less

How does the Flexi Hybrid Loan work as an interest-only loan?

The Flexi Hybrid Loan works as an interest-only loan by charging interest-only EMIs on the amount used for up to the first 36 months (3 years), where applicable. In the subsequent tenure, the EMI covers principal and interest. Part-prepayment carries no extra charge.


Interest-only EMI = amount used × annual rate ÷ 12 ÷ 100. After the initial tenure, the EMI follows the standard formula on the outstanding principal over the remaining months.

Show More Show Less

What does an interest-only loan cost?

On Rs. 9 lakh at an illustrative 12.5% per annum, an interest-only loan through the Flexi Hybrid Loan costs Rs. 9,375 a month for 36 months, then Rs. 23,922 for 48 months. Over the same 84 months (7 years), it costs Rs. 1,30,910 more in interest than a Term Loan.


Worked example: Rhea in Mohali

Rhea is 35 and works as a salaried finance manager in Mohali. She earns Rs. 1,40,000 a month and has a CIBIL score of 780. She needs Rs. 9 lakh to furnish a new home and expects a promotion within 2 years. She compares an interest-only loan through the Flexi Hybrid Loan with a Term Loan, at an illustrative 12.5% per annum, withdrawing the full amount at once.


EMI = P × R × (1 + R)^N ÷ [(1 + R)^N − 1]. P is the loan amount in rupees, R is the annual rate divided by 12 and by 100, and N is the tenure in months. The formula spreads the principal and interest into equal monthly payments, so early EMIs carry more interest and later ones more principal. All figures are rounded to the nearest rupee.


ItemFlexi Hybrid Loan (Rs.)Term Loan (Rs.)
EMI, months 1 to 369,37516,129
EMI, months 37 to 8423,92216,129
Total interest over 84 months (7 years)5,85,7564,54,846

Last updated: 16th October, 2026


The interest-only phase keeps her EMI at 6.7% of salary for 3 years, but her EMI then jumps to 17.1% of today's salary. The processing fee on Rs. 9 lakh is up to Rs. 37,170, and Flexi facility and annual maintenance charges also apply. Rhea chooses the Term Loan over the interest-only loan, because her promotion is not certain and the EMI of 11.5% of salary fits today.


What can delay approval: a CIBIL score below 650 or existing EMIs that take up a large share of your income. Names or addresses that do not match across documents, and more than one loan application in the same month, can also slow it down.


Weighing an interest-only loan against a Term Loan? With a Bajaj Finance Personal Loan, you can borrow Rs. Rs. 40,000 to Rs. Rs. 75 lakh, subject to eligibility. Check your loan offer with your phone number and a one-time password (OTP) → apply online in about 5 minutes → receive funds within 24 hours* of approval.

Show More Show Less

What are the eligibility criteria and documents required?

The Flexi Hybrid Loan is an interest-only loan variant of the Bajaj Finance Personal Loan. To be eligible, you need to meet the criteria listed below:


CriterionRequirement
NationalityIndian
Age21 years to 80 years.
Employed withPublic, private, or multinational companies (MNCs).
CIBIL Score650 or higher.
Customer profileSelf-employed or Salaried

*You should be 80 years or younger, at the end of the loan tenure.

Last updated: 16th October, 2026


Meeting these criteria does not guarantee approval, which depends on eligibility, verification and credit assessment. No collateral or guarantor is required.


You may need the following documents, subject to your profile and application:


Document categoryAccepted options
KYC proofAadhaar/ passport/ voter’s ID/ driving license/ Letter of National Population Register/ NREGA job card
Identity proofPAN card, Real-time image / photograph
Employment proofEmployee ID card, Letter of Allotment of Accommodation Issued by Employer
Income proofSalary slips — last 3 months, Bank account statements — last 3 months
OthersPension order, Utility bill, Phone bill, Piped gas bill, Property / Municipal tax receipt

Not every applicant needs every document. Confirm the final list of required personal loan documents during your application.

Show More

What interest rate and charges apply?

Bajaj Finance interest rates and charges are listed below:


ChargeAmount
Interest rate10% to 30.5% per annum, subject to applicable terms and customer eligibility
Processing feeUp to to 4.13% of the loan amount, inclusive of applicable taxes
Bounce chargesRs. 700 to Rs. 1,200 per bounce
Penal chargeUp to 36% per annum on the overdue instalment
Part-prepayment and foreclosure (Term Loan)Up to 4.72% of the principal, inclusive of applicable taxes
Part-prepayment (Flexi Dropline and Flexi Hybrid Loans)No charge
Flexi facility chargeRs. 1,999 to Rs. 18,999, inclusive of applicable taxes
Annual maintenance (Flexi Dropline Loan)Up to 0.295% of the Dropline limit
Annual maintenance (Flexi Hybrid Loan)Up to 0.472% in the initial tenure; up to 0.295% in the subsequent tenure

Last updated: 16th October, 2026

*Terms and conditions apply.


Charges are disclosed in the applicable product information and loan documents, so read your Key Fact Statement before you accept. Add the processing fee to the interest when you compare offers, and see the personal loan interest rates and charges page for details.

Show More

Who should not take an interest-only loan?

An interest-only loan does not suit you if your income is not likely to rise before the EMI jumps, or if you want the least total interest. The table compares the 3 variants.


VariantSuits you ifTrade-off
Term LoanYour income is steady and you want less total interestHigher EMIs from month 1
Flexi Dropline LoanCosts arrive in stagesFlexi facility and annual maintenance charges
Flexi Hybrid LoanYou need low EMIs for the first 36 months (3 years) and expect higher income laterMore total interest; the EMI rises later

Last updated: 16th October, 2026


Part-prepaying during the interest-only phase narrows the gap, because it lowers the principal before the larger EMIs begin. Plan for the higher EMI before you choose an interest-only loan.

Show More

How do you apply?

You apply for a Bajaj Finance Personal Loan online in five steps:

  1. Check loan eligibility: Enter the required loan amount and repayment period, then click "CHECK LOAN OFFER".
  2. Enter personal details: Enter personal, financial and employment details to receive a personalised offer.
  3. Loan offer: Review the offer details and adjust the amount or tenure to suit the applicant's needs.
  4. KYC verification: Complete KYC and verify bank details.
  5. Talk to loan specialist: The application is submitted and an executive contacts the applicant about the next steps.

The process may differ for new and existing customers, and some customers may need to provide additional documents. At the offer step, choose the Flexi Hybrid Loan only if you have planned for the higher EMI after the initial tenure.

Show More

Key offerings: 3 loan types

  • Flexi Hybrid Loan
  • Flexi Dropline Loan
  • Term Loan

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    You can pay interest-only EMIs for up to 36 months, after which, the EMI will consist of both, the principal and the interest. EMI is applicable only on the withdrawn amount.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest on the loan amount you withdraw.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Amount disbursed in one go
    The entire loan amount is disbursed at the start.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest.

  • Flexi facility charges
    No Flexi facility charges.

Personal loan interest rate and applicable charges

Type of fee

Applicable charges

Rate of interest per annum

10% to 30.5% p.a.

Processing fees

Up to 4.13% of the loan amount (inclusive of applicable taxes).

Flexi Facility Charge

Term Loan – Not applicable

Flexi Loans –Up To Rs 1,999 To Up To Rs 18,999/- (Inclusive Of Applicable Taxes)

Will be deducted upfront from loan amount.

Bounce charges

Rs. 700 to Rs. 1,200/- per bounce

“Bounce charges” shall mean charges for (i) dishonor of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonor of payment mandate or non-registration of the payment mandate or any other reason.

Part-prepayment charges

Full Pre-payment:

  • Term Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment

  • Flexi Term (Dropline) Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount, as on the date of full prepayment.

  • Flexi Hybrid Term Loan: Up to 4.72% (Inclusive of applicable taxes) on the outstanding loan amount, as on the date of full prepayment.

Part Pre-payment

  • Up to 4.72% (Inclusive of applicable taxes) of the principal amount of Loan prepaid on the date of such part Pre-Payment.

  • Not Applicable for Flexi Term (Dropline) Loan and Flexi Hybrid Term Loan.

Penal charge

Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount.

Stamp duty (as per respective state)

Payable as per state laws and deducted upfront from loan amount.

Annual maintenance charges

Term Loan: Not applicable

Flexi Term (Dropline) Loan:

Up to 0.295% (Inclusive of applicable taxes) of the Dropline limit (as per the repayment schedule) on the date of levy of such charges.


Flexi Hybrid Term Loan:

Up to 0.472% (Inclusive Of Applicable Taxes) Of The Dropline Limit During Initial Tenure. Up to 0.295% (Inclusive Of Applicable Taxes) Of Dropline Limit During Subsequent Tenure

Credit guarantee scheme feeUp to 1.18% p.a. (pro-rated daily till 31st March) (inclusive of all applicable taxes) of the loan amount
Credit guarantee scheme renewal feeUp to 1.18% p.a. (inclusive of all applicable taxes) on the outstanding loan amount as on April 01 of the subsequent Financial Year.
*Renewal Fee to be collected only for 3 subsequent financial years.
 
**If the Remaining Tenure is less than 12 months, the CG Fee in subsequent years shall be charged prorated.

Not your nearest branch?

Banner_NEW_Storelocator_XAOP_App_27072026.png

Frequently asked questions

How it works

Charges and prepayment

Do interest-only EMIs continue for the whole tenure?

No. On the Flexi Hybrid Loan, an interest-only loan variant, interest-only EMIs apply for the first 36 months (3 years), where applicable. In the subsequent tenure, each EMI covers principal and interest, so it rises. In Rhea's example, the EMI moves from Rs. 9,375 to Rs. 23,922 when the interest-only loan phase ends.

No. Because an interest-only loan repays no principal at first, total interest is higher. In the example, the Flexi Hybrid route costs Rs. 1,30,910 more in interest over 84 months (7 years) than a Term Loan of the same length. An interest-only loan lowers early EMIs, not the total cost.

A Flexi facility charge of Rs. 1,999 to Rs. 18,999 applies, inclusive of applicable taxes. Annual maintenance is up to 0.472% of the Dropline limit in the initial tenure and up to 0.295% in the subsequent tenure. The processing fee is up to to 4.13% of the loan amount. Add all 3 to the interest when you compare an interest-only loan with a Term Loan.

Yes. Part-prepayment on a Flexi Hybrid Loan carries no extra charge. Prepaying during the interest-only phase lowers the principal before the larger EMIs begin, which cuts the total interest on your interest-only loan. Check the updated schedule in My Account after each prepayment, so you know the EMI that will apply after the initial tenure.

Show More Show Less

Related articles

Article 1

Flat vs Reducing Interest

Oct 02, 2026

Read More

 Article 2

This is how you can avail better interest rate for your Personal Loan

Aug 31, 2026

Read More

 5-types-of-short-term-loans-in-india 3

5 types of Short-term Loans in India

Read More

 know-all-the-features-and-benefits-of-your-bajaj-finserv-personal-loan 4

Know all the features and benefits of your Bajaj Finance Personal Loan

Read More

You are here

Related Links

Disclaimer

Bajaj Finance Limited has the sole and absolute discretion, without assigning any reason to accept or reject any application. Terms and conditions apply*.
For customer support, call Personal Loan IVR: 7757 000 000