Personal loans also known as consumer loans is an unsecured loan which are given on the basis of the borrower’s credit history and the ability to repay the loan from his/her personal income. It is mostly taken on short term and the interest rates vary from bank to bank and person to person. Personal loan interest rates in India range from 11% to as high as 22%.
You can avail a personal loan in India of up to Rs 30 lakhs. The personal loan interest rate in India depends on many fixed and variable factors. Fixed factors are those which are set by the central bank that is the Reserve bank of India and must be followed by all the banks. They are:
• Repo rate – the rate at which the Reserve bank of India lends money to bank in case of any shortage. The repo rate is a tool to control inflation as the reserve bank of India lowers the repo rate if it wants to put more money in circulation and vice versa.
• Reverse repo rate- the rate at which the banks lend money to the reserve bank of India. It is a fiscal tool used to monitor money supply by the reserve bank of India.
• Cash reserve ratio- the percentage of money that banks has to keep with the reserve bank of India is called the cash reserve ratio (CRR).
• Statutory liquid ratio – it is the ratio between liquid assets (cash, gold) and the net demand and time liabilities (NDTL) that a bank has to maintain in order to meet urgent requirement of liquid cash to meet all the liabilities.
Considering all the above factors and the base rate which is also set by the Reserve bank of India to ensure transparency and low cost funding for personal loans, different banks have different variable factors which determine your loan amount and the personal loan interest rate. They are:
• Credit history – it is the sum total of all your credit taken earlier in terms of loan or credit card and the repayment of that credit. So if you have never defaulted in your repayments then you have a good credit/CIBIL score which will make you eligible for lower interest rates.
• Nature of employment – the nature of your job also determines the amount and the interest, whether you are salaried or self-employed. If salaried, then the status of your organization and if self-employed then the nature of your business.
• Bank-customer relation – if you apply to the same bank where you have an account, the bank generally gives a lower rate as you are an existing customer.
You can avail a personal loan in India of up to Rs 30 lakhs. The personal loan interest rate in India depends on many fixed and variable factors. Fixed factors are those which are set by the central bank that is the Reserve bank of India and must be followed by all the banks. They are:
• Repo rate – the rate at which the Reserve bank of India lends money to bank in case of any shortage. The repo rate is a tool to control inflation as the reserve bank of India lowers the repo rate if it wants to put more money in circulation and vice versa.
• Reverse repo rate- the rate at which the banks lend money to the reserve bank of India. It is a fiscal tool used to monitor money supply by the reserve bank of India.
• Cash reserve ratio- the percentage of money that banks has to keep with the reserve bank of India is called the cash reserve ratio (CRR).
• Statutory liquid ratio – it is the ratio between liquid assets (cash, gold) and the net demand and time liabilities (NDTL) that a bank has to maintain in order to meet urgent requirement of liquid cash to meet all the liabilities.
Considering all the above factors and the base rate which is also set by the Reserve bank of India to ensure transparency and low cost funding for personal loans, different banks have different variable factors which determine your loan amount and the personal loan interest rate. They are:
• Credit history – it is the sum total of all your credit taken earlier in terms of loan or credit card and the repayment of that credit. So if you have never defaulted in your repayments then you have a good credit/CIBIL score which will make you eligible for lower interest rates.
• Nature of employment – the nature of your job also determines the amount and the interest, whether you are salaried or self-employed. If salaried, then the status of your organization and if self-employed then the nature of your business.
• Bank-customer relation – if you apply to the same bank where you have an account, the bank generally gives a lower rate as you are an existing customer.
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