Personal loans are one of the most flexible financial options when you need extra money, whether it’s for a large purchase, a family celebration, or an unexpected expense.
However, imagine you’re planning a wedding and come across what seems like a great loan offer. Later, you realize that the interest you’re paying is much higher than expected. So how can you make sure you don’t end up paying more than necessary?
This situation is quite common. Interest rates play a major role in determining how expensive your loan will be. That’s why it’s extremely important to understand personal loan interest rates before applying.
Let’s explore everything you need to know about personal loan interest rates in India.
What is the Personal Loan Interest Rate?
A personal loan interest rate is the cost you pay for borrowing money, usually shown as a yearly percentage. When you take a loan, the lender charges interest on the amount you borrow. On the other hand, when you save or invest money, you earn interest on it.
Interest rates are affected by several factors, including central bank decisions, demand for credit, and overall economic conditions. Changes in interest rates can influence how people spend, borrow, and invest, which in turn impacts the economy.
Interest Rate on Personal Loan
The interest rate on a personal loan is one of the key factors that decides how much the loan will actually cost you.
It directly affects your monthly EMI and the total amount you repay over time. Below are the personal loan interest rates and charges offered by LoanTap:
| Fees | Applicable Charges |
| Rate of Interest | Up to 26% |
| Processing Fees | 2%–3% + GST |
| Bounce Charges | ₹550 |
| Pre-Payment Charges | 4% + GST if foreclosed within 180 days from disbursement after cooling-off period |
| Platform Charge | ₹750 + GST |
| Broken Period / Pre-EMI Interest | Based on disbursement date |
Note: Rates and charges below are indicative and may vary by borrower profile and product. Last updated: January 2, 2026. Always refer to the lender’s product page and loan agreement for final terms.
How to Calculate Interest for Personal Loan?
Knowing how to calculate personal loan interest helps you understand the total cost of borrowing and manage your finances better.
The simplest way to calculate interest on a personal loan is by using an online EMI calculator. You just need to enter the loan amount, interest rate, and repayment tenure. The calculator will instantly show your monthly EMI and the total interest payable.
You can also calculate the interest manually using this formula:
Total Interest = Total Amount Payable – Principal Amount
Let’s understand this with an example.
Suppose Mr. Raj takes a personal loan of ₹4 lakh at an annual interest rate of 14% for a tenure of 2 years.
Here’s the breakdown:
- Loan Amount (Principal) = ₹4,00,000
- Annual Interest Rate = 14% or 0.14
- Loan Tenure = 2 years or 24 months
First, convert the annual interest rate to a monthly rate:
Monthly Interest Rate = 14% ÷ 12 = 0.01167
Tenure in months = 2 × 12 = 24 months
Using the EMI formula, we calculate the monthly EMI.
Next, calculate the total amount payable:
Total Amount = EMI × Number of months
Finally, subtract the principal from the total amount to get the total interest paid.
For Mr. Raj’s loan, the final figures are:
- Monthly EMI: ₹19,205.15
- Total Interest Payable: ₹60,923.68
- Total Amount Payable: ₹4,60,923.68
Interest Rate vs APR – what you must compare
Annual Percentage Rate (APR) is the closest thing to the true cost of a personal loan. While the interest rate affects your EMI, APR includes interest plus mandatory fees and charges (processing fees, platform charges, any applicable foreclosure or processing costs).
Comparing loans using APR not just the headline interest rate gives you a single figure that reflects the total yearly cost and makes lender-to-lender comparisons meaningful. Before you apply, check the APR or use an EMI/APR calculator to compare the total cost across offers.
Factors Affecting Personal Loan Interest Rates
When you apply for a personal loan, lenders consider several factors to decide the interest rate offered to you:
Monthly Income
Your income plays a major role in determining both your loan eligibility and interest rate. A higher and stable income reassures lenders that you can repay the loan on time, which may help you get a lower interest rate.
Credit Score
Your credit score shows how responsibly you manage your finances. A score above 700 generally improves your chances of getting a lower interest rate, while a low score may result in higher rates due to increased risk.
Loan Repayment History
Lenders carefully review your past repayment behavior. Regular and timely EMI payments create a positive impression, while missed payments or defaults can lead to higher interest rates or even loan rejection.
Debt-to-Income Ratio
This ratio shows how much of your income goes toward existing debts. A debt-to-income ratio of 30% or less is considered healthy and may help you secure better interest rates.
Tips to Avail Personal Loans at Low Interest Rates
Getting a personal loan at a lower interest rate requires smart financial planning and discipline. Here are a few practical tips:
1. Maintain a Good Credit Score
A credit score of 700 or higher improves your chances of getting better loan terms. To maintain a strong score:
- Pay all bills and EMIs on time
- Keep credit card usage below 30% of your limit
- Avoid applying for multiple loans or cards at once
- Make sure co-signed loans are repaid on time
- Clear credit card dues in full every month
2. Compare Loan Offers
Never go with the first offer you see. Compare interest rates, fees, and repayment terms from different lenders. If you already have a good relationship with a bank or NBFC, try negotiating for better rates.
3. Review Your Employment Stability
Your job profile and work history matter:
- Lenders prefer borrowers with stable employment and at least two years of work experience
- A lower FOIR indicates manageable monthly obligations
- Working with reputed companies or government organizations may help you get lower interest rates
Conclusion
Understanding personal loan interest rates in India helps you make smarter borrowing decisions. By knowing what affects these rates and comparing offers from multiple lenders, you can choose a loan that fits your financial needs. Whether you’re borrowing for a planned expense or an emergency, being aware of the total loan cost can prevent unnecessary financial pressure.
If you’re searching for a competitive personal loan, LoanTap offers multiple loan options with attractive interest rates and minimal paperwork. With fast approvals and flexible repayment plans, LoanTap makes borrowing simple and stress-free when you need funds urgently.
Frequently Asked Questions
1. What factors affect personal loan interest rates in India?
Interest rates depend on your credit score, income, repayment history, and the lender’s policies.
2. How can I improve my chances of getting a lower interest rate?
Maintain a good credit score, compare multiple lenders, and show stable income and employment.
3. Are personal loan interest rates fixed or variable?
Personal loan interest rates can be either fixed or variable, depending on the lender and loan terms.
4. What is APR and why is it important when choosing a personal loan?
APR (Annual Percentage Rate) shows the total yearly cost of a loan, combining the interest rate and mandatory fees. Comparing APRs across offers tells you which loan is actually cheaper overall not just which has the lowest headline interest rate.
5. Do prepayments reduce interest rates?
Prepayments don’t change the interest rate, but they do reduce the total interest paid.
6. How does my credit score affect my interest rate?
A higher credit score usually results in lower interest rates, as it signals lower risk to lenders.
Recent Posts
Get instant personal loans with flexible EMIs
