Top 10 Banks With The Lowest Personal Loan Interest Rates

In recent times, There has been a substantial increase in personal loan offering in India, which have made RBI Governor Shanktikanta Das urge lending corporations to strengthen their business mechanism to avoid any kind of incipient stress. According to the Reserve Bank of India (RBI) report, the total credit segment for personal loans stood at Rs. 47.7 trillion, a 30% increase, compared to Rs. 36.47 trillion the year earlier. Out of the total personal loan circulation, 47% of the market share belongs to FinTech corporations, who collectively focus on loans with a ticket size below Rs. 1 lakh, which have increased by 73% this year.

As per the Economic Times, towns like Alwar, Gorakhpur, and Barpeta have witnessed significant loan disbursal, especially in the fourth quarter of 2023 by FinTech lenders. The exponential growth in personal loan sectors indicates a surging rise with the phase overall sector is growing. For a young individual, it becomes critical to understand a few aspects related to it and ensure the best interest rates are applied before they procure any loan amount from available lenders. Here is a slightly detailed explanation of a few aspects that loan seekers must understand such as credit score, Estimated Monthly instalments (EMI), required documents and fees or charges associated.

Credit Score

Nowadays, the credit score of an individual or a firm has become the main aspect of gaining secured or unsecured loans. The financial credit history of the loan seeker is significant to ensure appropriate amounts and interest rates are offered. A high credit score above 739 or 799 helps to gain higher loan amounts with lower interest rates, while a credit score below 600 range would be considered risky for lenders, resulting in fewer loan amounts and higher rates of interest, ultimately affecting the total interest amount payable by the maturity period.

Calculation of Personal Loan EMI

The EMI is the periodic instalments required by the individual to make payments towards the procured personal loan. These instalments are either calculated through an online EMI calculator available on almost all lender company websites for quick calculations providing approximate instalment amounts, or one can manually calculate them utilising a formula and few steps.

The formula to calculate a monthly instalment is:

EMI = [(P x R) x (1 + R) / N] ÷ [(1 + R) / (N - 1)]

Here, P stands for Principal amount or Loan Amount

R stands for Rate of Interest Applicable Monthly,

N stands for the Number of months the loan is to be repaid in (Number of years x 12 months).

For example, If one secures a personal loan of Rs. 2,00,000/- for 5 years (5 x 12 months) with an interest rate of 12% (12% ÷ 12 months = 1% per month) then as per the formula,

EMI = [(2,00,000 x 1/100) x (1 + 1/100) / 60] ÷ [(1 + 1/100) / (60 - 1)]

After calculation, the amount for monthly instalments or EMI would be approximately Rs. 4,449/-.

Documentation

The documents required for a personal loan depend if the loan seeker is a salaried individual or a self-employed individual. A salaried employee would need ID proof, employer proof, and income proof such as three months of payslip and three years of Income Tax Return(ITR) filed. Whereas for a self-employed person, the documents required are income proof, professional registration, bank statement, and last three years ITR.

Processing Fee

Processing fees are the payment for the expenses the banks incur while allotment of loans. These are mostly administrative expenses which defer according to the terms and conditions of various banks. The average processing fees paid by a loan seeker are in the range of 0.5% to 2.5%. The fees can be paid at the time of applying for a loan or they can be deducted directly from the receivable loan amount.

Below are the top ten interest rates offered by Institutions, aligned in an ascending order

Sr. No.	Name of The Bank	Personal Loan Interest Rates (per annum)
1	Bank of Maharashtra	10.00% onwards
2	Bank of India	10.25% onwards
3	Axis Bank	10.49% onwards
4	IDFC First Bank	10.49% onwards
5	HDFC Bank	10.50% onwards
6	ICICI Bank	10.50% onwards
7	SBI	10.55% onwards
8	Kotak Mahindra Bank	10.99% onwards
9	Tata Capital	10.99% onwards
10	Bajaj Finserve	11.00% onwards