In India, personal loan is one of the most reliable options to create a fund for personal expenses. You can avail this popular option offered by various banks and financial institutions at a competitive rate of interest. Let us understand what is the interest on a personal loan and how is it calculated.

What is Interest Rate?

The interest rate on loan signifies the amount paid to the lender every year on the outstanding amount of the loan availed. It is denoted as Annual Percentage Rate.

What is Interest on Personal Loan?

When you borrow a loan, it comes with a precondition of repayment. And repayment of loan can be made in two parts:

  1. The principal
  2. The interest

Interest is paid periodically as a percentage of the remaining loan amount and is a separate component of a loan, which is levied as a charge by the loan provider.

Factors that Influence Interest Rate on Personal Loans

Various factors influence interest rate on personal loans. Although the central bank sets the interest rate, market conditions too, influence the interest rates for personal loans. Besides, age,income, employment status, work experience, credit score,loan tenure, existing loans or other borrowings and repayment capacity are also considered are other factors that influence the interest rate if you wish to apply for personal loans.

Other technical factors relating to the loan that impact the interest rate you are offered includes:

Principal Amount

You can negotiate better with the lender in case you need a more significant amount along with a good credit score.

Loan Term

The tenure of the loan will ultimately define how much interest you end up paying over the years.

Repayment Schedule

Frequent repayment will lead to continually decreasing the burden of interest.  

How is Interest on Personal Loan Calculated?

EMI Calculators online help you to do the calculations right with the formula

EMI calculation formula:

Interest = Principal Amount x Rate of Interest

For instance:

Rohan takes a personal loan of Rs.5 Lakhs at an interest rate of 12% per annum to be paid back in 5 years, the interest will be calculated as:


The total EMI (Interest + Principal) will beRs.11,122.

After applying the EMI calculation formula, first-month calculation looks something like this:

Month Loan Balance EMI Interest Paid Principal Paid New Balance
             1         5,00,000    11,122               5,000                   6,122       4,93,878


For the next month, the interest will be calculated on the new balance, which is calculated as:

Loan Balance – Principal Paid

In this case, to determine the interest, you will have to use the new balance – Rs.4,93,878 as the loan amount.

From here, you can create your own loan calculator in Excel for the subsequent months, which would be something like:

Month Loan Balance EMI Interest Paid Principal Paid New Balance
             2         4,93,878    11,122               4,939                   6,183       4,87,695
             3         4,87,695    11,122               4,877                   6,245       4,81,450
             4         4,81,450    11,122               4,814                   6,308       4,75,142
             5         4,75,142    11,122               4,751                   6,371       4,68,772
             6         4,68,772    11,122               4,688                   6,434       4,62,337
             7         4,62,337    11,122               4,623                   6,499       4,55,839
             8         4,55,839    11,122               4,558                   6,564       4,49,275
             9         4,49,275    11,122               4,493                   6,629       4,42,646
           10         4,42,646    11,122               4,426                   6,696       4,35,950
           11         4,35,950    11,122               4,360                   6,762       4,29,188
           12         4,29,188    11,122               4,292                   6,830       4,22,358


How is Total Interest on Personal Loans Calculated?

The total interest paid on your personal loan for the first year can be calculated by adding up the interest of all the 12 months.

Adding up the interest on all 12 months, you can determine the total interest paid on your personal loan for the first year, which in this case would be Rs.55,822.

Now to determine the total interest that Rohan would end up paying throughout 5 years can be determined by stretching the same inputted formulae in excel to 60 months. The result for the last year (5th year in this case) would be something like:

Month Loan Balance EMI Interest Paid Principal Paid New Balance
          49         1,25,182     11,122               1,252                   9,870       1,15,311
           50         1,15,311     11,122               1,153                   9,969       1,05,342
           51         1,05,342     11,122               1,053                 10,069          95,273
           52            95,273     11,122                  953                 10,169          85,104
           53            85,104     11,122                  851                 10,271          74,833
           54            74,833     11,122                  748                 10,374          64,459
           55            64,459     11,122                  645                 10,478          53,981
           56            53,981     11,122                  540                 10,582          43,399
           57            43,399     11,122                  434                 10,688          32,711
           58            32,711     11,122                  327                 10,795          21,915
           59            21,915     11,122                  219                 10,903          11,012
           60            11,012     11,122                  110                 11,012                    0


By looking at the tables, you will understand that the dues on interest as well as principal are paid in the 60th month, putting closure to the loan.

Let’s have a look at the totals:

Total EMI = Rs.6,67,333

Total Principal Paid = Rs.5,00,000

Total Interest Paid = Rs.1,67,333

Hence, the total interest paid by Rohan on the borrowed amount comes to 33%.


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EMIs on personal loan can be calculated manually and using Excel. However, the simplest way is to take help of loan calculators available online by PaySense. This would help you calculate the amount you need to pay every month in order to fully repay the borrowed loan amount within the pre-decided term duration. With this online calculator, you can input the amount of loan you are looking for and then analyze the options available based on the monthly EMI amount that would be comfortable for you to pay. Using our app and web platforms, you can apply for lucrative personal loans online of up to Rs.2 Lakhs. In just three easy steps, your loan would be sanctioned and disbursed within a few hours right into your bank account. PaySense can be your best option for easy, instant, and hassle-free personal loans.