What Is a Personal Loan Interest Rate?
A personal loan interest rate is the cost a individual pays for availing of the loan. The interest calculated on a personal loan depends on factors like credit score, income, and lender policies. Generally, interest rates starts from 10% p.a., affecting overall repayment.
Types of personal loan interest calculation methods
The interest calculated on a personal loan varies based on the method used by lenders. It determines the total repayment amount and affects affordability. Understanding different calculation methods helps borrowers choose the best loan option.
1. Simple interest calculation
Lenders calculate personal loan interest using a fixed percentage on the principal amount for the entire loan tenure. It is straightforward but may result in higher overall interest costs.
2. Reducing balance interest calculation
Interest is recalculated periodically on the remaining principal after each EMI payment. This method reduces the interest burden over time, making repayments more cost-effective.
3. EMI-based interest calculation (amortization scedule)
Here, each EMI consists of both interest and principal components. Over time, the interest portion decreases while the principal repayment increases, ensuring a structured repayment plan.
Factors that affect interest rate on your personal loan
Your personal loan interest rate is dependent on various factors such as:
Credit score or CIBIL score
CIBIL score determines the creditworthiness of a borrower. Therefore, a good credit score can help you avail of a sizeable loan with affordable interest rates.
Monthly income
Your monthly income is yet another deciding factor when determining the interest rate on your personal loan.
Loan amount
A good CIBIL score and repayment history will improve your chances of getting a substantial amount with a reasonable interest rate.
If you are an applicant with a robust credit score, have repaid your previous loans on time, and have a good monthly income, you can easily qualify for a personal loan.
Bajaj Finserv offers personal loans that come with attractive interest rates and quick disbursal within 24 hours* of approval. Use our online EMI calculator and know your loan EMI and interest rate in a few minutes.
*Terms and Conditions apply
Read More: Differences between flat and reducing interest rate
Frequently asked questions
To calculate personal loan interest at a lower rate, maintain a high credit score, stable income, and meet the specific eligibility criteria.
The lowest personal loan interest rates typically start from 10% p.a., depending on the applicant’s credit score, income, and repayment history.
