Can you charge interest on a personal loan

What’s a personal loan?

To put it simply, it is an unsecured loan that people from a bank or a non-bank financial company (NBFC) take in order to meet their own individual needs. It is made available on the basis of key criteria such as income level, credit history and job history, repayment capacity, etc.

Contrary to a home or car loan, no personal loan against any property is secured. Since it is not insured and the creditor will not place collateral such as gold or land to use it, the lender is unable to sell something you own in case of default. The interest rates on personal loans are higher than on domestic, car or gold loans due to the higher perceived risks in their sanction.

Like any other loan, however, a personal credit default is not good as would be reflected in your credit report and causes trouble when applying in future for credit cards and other loans.

Factors impacting interest rates on personal loans


Loan companies take account of the applicant ‘s income when deciding the interest rate. Persons with a high income present a lower risk for the bank and may hence be given a lower interest rate. At the other hand, lower annual sales would have to pay a higher rate of interest.

Employer Details

The financial institution / bank is more likely to give you a lower interest rate if you work with a reputable company.

Employment nature

Loan providers can give applicants different interest rates on the basis of whether they are self-employed or paying.


The applicant’s age can also have an effect on the loan provider’s rate of interest. Persons approaching the retirement age can be paid a higher interest rate.

Loan Provider Relationship

Existing banking / financial institution customers will be given a lower interest rate when making a request for a personal loan if they have a strong relationship with a loan provider. At the discretion of the bank, however, a preferential interest rate will not be given to all current customers.

Fixed Interest Rate vs floating interest rates- What is better

If you opt for a fixed interest rate personal loan, you will be paying the same rate during the loan repayment period.

On the other hand, the floating or variable interest rate is linked to the marginal loan rate or the MCLR, which contributes to a fluctuation of the interest rate as the MCLR changes.

The benefit of having a fixed rate is that you know exactly how much you will be paying over the loan duration. Those who want to prepare their savings in advance may then select a fixed rate of interest.

However, you can opt for a floating / variable interest rate if you don’t care about a fluctuating interest rate. The advantage of choosing a variable interest rate is that when the interest rate is low your repayment amount will decrease.

What is the reducing interest rate on personal loans?

If you have a flat interest rate personal loan, the interest is levied on the entire loan balance for the entire loan repayment period. If a loan is used on a lower interest rate / balance sheet arrangement, the interest is based only on the unpaid loan sum. For this situation, the interest on the remaining loan term is based on the unpaid loan balance when you make a monthly repayment.

Things to take into account

There are a few other things you should consider while selecting a personal loan with a low interest rate:

Processing Fee

Loan suppliers charge a one-time fee known as a processing fee that can increase loan prices. Even if the interest rate is small, the processing fee paid by various borrowers must be reviewed and compared.

Pre-closure charges

Some banks may charge you a pre-closure fee if you repay the remaining loan balance before the loan’s repayment tenure is finalized. Make sure that you test if a pre-closure charge is charged by the bank / financial institution.

Customer Service

In order to have a good borrowing experience, a borrower that provides good customer service must apply. Before applying for your loan, you can review the available customer service channels and how easily the lender will support you on request.

Eligibility Criteria

Although the bank or financial institution may offer low interest rate personal loans, you should check whether you meet the lender’s eligibility criteria. To that end, make sure you check whether your income meets the specified limit and whether you meet the age requirements.

Loan Disbursal Time

It is important to take the loan disbursement time into account when you want to take a personal loan because of an emergency. Within a matter of seconds, most leading banks and financial institutions disburse the loan.

Other fees

Although the lender may charge a marginally higher rate of interest, you may save an overall loan cost if the fee for collection, defaults, prepaid charges, Loan Cancellation Fees, Check / EMI bounce fees, Instrument Return fees, Stamp Duty Fees, Duplicate Statement Fees, Swap Fees, Duplicate Loans Schedule issuance fees etc., Make sure, before applying for a personal loan, you compare the different charges levied by the lender.


While the bank / financial entity might have indicated a high interest rate, you may try to negotiate a low interest rate with the bank. Many times, lenders give current customers and those who maintain a healthy relationship with them a discount.

Special Offers

Some lenders can charge you a lower rate during holidays.

Compare Best Interest Rate on Personal Loan

Lenders Interest Rate* Loan Amount
Allahabad Bank 10.65% onwards 50,000-20 lakhs
Axis Bank 12-24% 50,000-15 lakhs
Bajaj Finserv 12.99% onwards Up to 25 lakhs
Bank of Baroda 11.40-16.40% 50,000-10 lakhs
Bank of India 10.50% onwards Up to 10 lakh
Bank of Maharashtra 10.85-11.85% Up to 10 lakh
Citibank 10.50-18.99% 50,000-30 lakhs
Early Salary 24% to 30% 8,000 – 2 lakh
Fullerton India 12-36% Up to 25 lakhs
HDFC Bank 10.75-21.30% 50,000-40 lakhs
Home Credit 24% to 49% 25000 – 2.40 lakh
ICICI Bank 11.25% onwards 50,000-20 lakhs
IDBI Bank 12% – 14% 25,000-10 lakhs
IDFC First 11.50% onwards 1 lakh-25 lakhs
IndusInd Bank 10.75% onwards 50,000-15 lakhs
Kotak Mahindra Bank 10.99-24% 50,000-15 lakhs
Kreditbee 12.24% onwards 1000 – 2 lakh
Moneytap 1.25% p.m. onwards Rs. 3000 to Rs. 5 lakh
Moneyview 1.33% p.m. onwards Rs. 10,000 to Rs. 5 lakh
Muthoot Finance 14.50% onwards 50,000-10 lakhs
Punjab National Bank RLLR+2.15 to RLLR+6.70% 50,000-10 lakhs
RBL Bank 12-23% 1 lakh-20 lakhs
Standard Chartered Bank 10.99% onwards 1 lakh-30 lakhs
StashFin 11.99% to 59.99% 500 – 5 lakh
SBI 10.50% onwards Up to 20 lakhs
TATA Capital 10.99% onwards 75,000-25 lakhs
UCO Bank 10.95% onwards Up to 10 lakhs
Union Bank of India 10.10% onwards Up to 10 lakhs
Yes Bank 10.99% onwards 1 lakh-40 lakh

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