7 Smart Ways to Get the Best Personal Loan Rates
Personal loans have become one of the best financial tools available to Indians in today’s fast-paced environment. Personal loans can provide an immediate remedy for a wide variety of reasons, such as wedding expenses, educational financing, out-of-pocket medical costs, home renovation, or borrowing to pay off credit cards.
The benefit of a personal loan is that there is flexibility. You cannot use home loans and auto loans as you would like. You must use them for their original prescribed use. In contrast, personal loans can be used for whatever you want. The downside is that personal loans are unsecured loans. This means you are not required to furnish collateral, but lenders will charge more than for secured loans because of the risk factor.
Conventionally speaking, in India, personal loan rates of interest fall between the range of 10%-24% per annum, depending upon the lender and your personal profile. A slight difference in the interest rate can make a significant difference to the total cost of a loan.
Example:
- At a ₹5 lakh loan amount, for a 5-year period:
- If your interest is at 10%, your EMI will be ₹10,624, and you will incur about ₹1.37 lakh in interest costs.
- At 20% interest, your EMI will be ₹13,249, and you’ll pay about ₹2.95 lakh in total interest.
That’s a massive ₹1.58 lakh extra simply because of a higher interest rate. This is why finding the best possible personal loan rate is not just important but essential for financial health.
In this blog, we’ll explore 7 smart strategies that can help Indian borrowers secure the most affordable personal loan deals while avoiding common mistakes.
Maintain a Healthy CIBIL Score
Your CIBIL score is the first thing any Indian lender checks before deciding your loan eligibility and interest rate. It’s a 3-digit number ranging from 300 to 900, representing your creditworthiness.
Why does CIBIL matter?
- It indicates how well you have handled previous credit, i.e., loans and credit cards.
- Banks consider a higher score as less risky, giving you better interest rates
- A low score makes lenders wary; they reject the application or grant the application at extremely high interest rates.
Score Range in India:
- 750–900 (Excellent): Extremely high probability of approval with the lowest interest rates.
- 700–749 (Good): Probably approved, but interest could be marginally higher.
- 650-699 (Fair): Almost certainly approved, however, with higher interest rates.
- Below 650 (Poor): Most banks will either deny you or approve you at high rates in case you find funding from NBFCs or instant loan apps only.
How to Improve CIBIL Score in India:
- Timely Payments: Ensure you pay credit card dues and EMIs before they are due and only miss a payment once; missing even one payment, even a couple of days late, can affect your score.
- Keep Credit Utilisation to a minimum: Use less than 30% of your credit card limit. So if your credit card limit is ₹1 lakh, you should not spend more than ₹30,000 in any month on that card.
- Do not keep applying for new loans: Every time you apply for a new loan, it creates a “hard inquiry”, which will make it much harder to receive funding if you have too many inquiries in a short period of time.
- Do not be so quick to close your old accounts: Old credit cards and loans are important to your overall credit history, so do not be so quick to close them.
- Correct Errors: Occasionally, your report might reflect incorrect defaults. Check and dispute such errors regularly.
Case Study:
Amit, who is a software engineer in Pune, had a CIBIL score of 780. He took a ₹6 lakh loan from HDFC Bank and was charged 10.5%. His friend Rajesh, whose CIBIL score was 660, took the same loan and was charged 16%. Rajesh paid an additional ₹1.25 lakh in interest over a period of 5 years compared to Amit.
Lesson: Your CIBIL score can literally save you lakhs.
Compare Lenders Thoroughly
In India, interest rates for personal loans differ greatly based on the lender type. If you don’t compare, you are likely to pay unnecessarily high interest.
Types of Lenders:
Public Sector Banks (SBI, Bank of Baroda, PNB):
- Lower interest, stricter criteria and slower processing.
Private Banks (HDFC, ICICI, Axis, Kotak):
- Faster processing, digital processing, but marginally higher interest.
NBFCs (Bajaj Finserv, Tata Capital, Fullerton):
- More lenient with eligibility; okay for lower credit scores, but at a higher rate.
Fintech Lenders (MoneyTap, PaySense, CASHe):
- Instant app approvals are extremely convenient, but usually come with a 15–30% interest rate.
How to Compare Effectively:
- Compare loans on websites such as Money Buddha.
- Don’t look at just the advertised interest rate. Check:
Processing fees (can be 1–3% of loan value).
Prepayment/foreclosure charges (normally 2–5%).
Late payment charges. - Compute the overall cost of the loan (EMI × tenure) rather than just paying attention to the monthly EMI.
Example:
For a ₹5 lakh 5-year loan:
- Bank A: 11% interest, 2% processing charges → Total cost ₹6.64 lakh.
- Bank B: 11.5% interest, no processing charges → Total cost ₹6.65 lakh.
Even though Bank A is charging a lower rate, the processing charge brings it on par with Bank B.
Choose a Shorter Loan Tenure
Most Indian borrowers prefer longer tenures since they do not want bigger EMIs. Although this lessens the monthly load, the total interest goes up significantly.
Example:
- ₹5 lakh at 12% for 3 years → EMI: ₹16,607 → Total Interest: ₹96,000.
- ₹5 lakh at 12% for 5 years → EMI: ₹11,122 → Total Interest: ₹1.67 lakh.
That’s an additional ₹71,000 for only 2 more years.
Why Shorter Tenure is Better:
- Faster repayment = less risk for the bank.
- Lenders typically give discounts to shorter tenure borrowers.
- You save a lot of money on total interest.
Pro Tip: Compare and use online EMI calculators before applying. Balance EMI affordability with overall loan cost.
Show Strong Income and Job Stability
Indian banks consider it safer (and thus more preferable) to lend to those who can demonstrate stable employment and higher salaries. Having a higher income will give the lenders greater confidence in the borrowers’ ability to pay back the loan, frequently leading to lower interest rates.
Key Factors:
- Employer Profile: Having a government, PSU, or a well-known MNC employer increases your reliability.
- Income Level: Higher income = bank’s lower risk.
- Job Stability: Minimum 2 years of overall work experience and 6 months with your current company is typically desired.
Example:
- Ravi, who earns ₹1,20,000 a month at Infosys, was offered a loan of 11%.
- Ajay, who earns ₹30,000 a month at a small startup, was offered 15.5% for the same.
Pro Tip: Wait 6–12 months after a new job before applying for a personal loan.
Lower Your Debt-to-Income Ratio
Your Debt-to-Income (DTI) ratio is the proportion of your monthly income that covers current EMIs.
Why it matters:
Indian banks prefer borrowers who have a DTI of less than 40%. A high DTI reflects financial stress, and banks will ask for more interest or even reject your application.
Example:
- Income: ₹60,000/month.
- Current EMIs: ₹20,000 → DTI = 33% (Good).
- Current EMIs: ₹30,000 → DTI = 50% (Risky).
How to Lower DTI
- Prepay small loans prior to applying.
- Consolidate all debts into one.
- Avoid availing new loans in the 6 months leading up to applying.
Negotiate with Your Current Bank
Most Indians are unaware that they can bargain over loan interest rates. If you are a long-term customer, banks will readily provide preferential interest rates for you.
- Some banks offer pre-approved loans at reduced interest to account holders.
- You can request your bank to match competitor offers.
- Being a salary account holder with the bank usually comes in handy.
Example: Priya was a 7-year HDFC salary account holder. While she required a ₹4 lakh personal loan, HDFC gave 10.5% (compared to 12% from another bank) and even exempted the processing fee.
Be Aware of Seasonal Discounts and Internet Discounts
In India, banks and NBFCs provide special festival offers (Diwali, Dussehra, Independence Day, Republic Day). The offers are:
- Reduced interest rates (0.5–1% discount).
- Waived processing charges.
- Cashback or vouchers.
Example:
SBI gave loans at 9.6% interest in Diwali 2023 (as opposed to their standard 10.5%). Thousands of Indians ended up saving money just by applying at the time.
Pro Tip: Unless there is an urgent need, schedule your application around festivals to get better interest rates.
Indian Borrower Bonus Tips
- Don’t get taken in by instant loan apps that don’t have RBI clearance — lots take 30–50% interest.
- Foreclosure conditions. Prepayment without charges after 12 months is allowed in some banks.
- Think about a balance transfer if you are already carrying a high-interest loan.
- Don’t borrow more than you require – don’t over-borrow just because you can.
Money Buddha: Your Loan Comparison Partner
With many choices to choose from, comparing manually is challenging. That’s where Money Buddha comes in:
- Compare interest rates at banks, NBFCs, and fintech lenders.
- Plan your budget using EMI calculators.
- Review ratings and feedback on lenders.
- Apply directly online with low paperwork.
Money Buddha truly saves you time and gets you the best deal that is appropriate for your profile.
Common Mistakes Indians Make While Taking Personal Loans
- Submitting applications to several banks simultaneously → CIBIL score reduction.
- Hidden charges not taken into account → Processing charges, overdue fees, foreclosure charges.
- Taking more than one needs → More interest to pay back.
- Opting for long tenors without understanding → Double the interest paid.
- SMS/WhatsApp loan frauds → Always verify RBI approval.
Conclusion
Personal loans can be a lifesaver if used sensibly. But in the absence of planning, they can turn into an economic trap.
To avail of the best personal loan interest rates in India, keep in mind:
- Develop and maintain a high CIBIL score.
- Compare more than one lender rather than hopping into just one.
- Choose shorter tenures whenever possible.
- Present excellent income and stability in your job.
- Maintain a healthy debt-to-income ratio.
- Negotiate using your relationship with your bank.
- Time your loan during festival offers.
Even a 0.5% decrease in interest can help you save tens of thousands of rupees. Wait patiently, research thoroughly, and make your choice wisely.
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