What are Interest Rates?
Interest rates, expressed as Annual Percentage Rate (APR), define the charges that are levied by a lender on availing a loan to the borrower. Interest rates are governed by the central bank based on the political and market situations in the country. Interest rates are different for different types of loans in India. The interest rates for personal and educational loans are higher as they are unsecured loans without any asset as collateral. Whereas the interest rates on car and home loans are lesser in comparison as they are secured investments for the bank with an asset security to fall back on.
Apart from the central bank, there are various other factors also that influence the interest rates. Some of them are described here:
Competition in Private Banks
Private banks compete for specialized products. Where one bank avails good interest rate on personal loan, another can help you with better interest rate on car loans. Only public banks provide lower interest rate on educational loans. The defaults on educational loans are high and that increases the burden of Non-Performing Assets (NPAs) for the bank. These loans are too risky for the private banks and hence they usually levy much higher interest rates.
Type of Loan
As described above, the interest rate fluctuates based on the type of loan you wish to secure. Where personal loans come with an interest rate range from about 10% to 35%, the range for car loans would be from 9.25% to 10%.
Interest Rate on Personal Loans
On personal loans, you usually get the maximum scope for negotiating on the rate. As you saw above, there is hardly any scope of negotiation in the car loan interest rate. However, on personal loan, the interest rate is calculated by the bank by analysing a few important parameters, including:
- Principal Amount
- Loan Tenure
- Repayment Schedule
- Employment Type
- Current Financial Position
- Credit Score
- Existing Liabilities
- Current Income
- Current Age
- Work Experience (total as well as in the current organization)
You can further negotiate with the bank for better interest rate on personal loan if you consider the following factors:
- Clearing your current dues
- Maintaining a steady professional life
- Including a well-earning co-applicant
- Improving your credit score
In order to calculate the interest, you will need to pay on personal loan, you will simply need to apply the formula:
Interest = Loan Principal*Interest Rate (on a monthly basis)
Quick Loans of up to INR 2 Lakhs
In order to calculate the total interest over the life of loan, here is our guide to prepare your own interest calculator in Excel. In order to determine your monthly payments, you can use the EMI calculator for personal loan. For quick and instant loans, you can download the PaySense app or login to our web portal. In three easy steps, you can avail a loan of up to INR 2 Lakhs within a few hours.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs