Are you in need of quick funds to meet an unexpected financial requirement? A personal loan might be just the option you’re looking for. Whether it’s for home renovations, unexpected expenses, or consolidating debt, personal loans offer a versatile solution. However, do note that personal loans come with a cost.
“Personal loans are unsecured, making them easily accessible for those who need funds quickly. These loans are typically used in emergencies or when urgent funds are needed. However, the convenience of personal loans comes at a cost, as they often attract high interest rates, depending on the borrower’s credit score and the lender’s terms. This makes them one of the most expensive forms of borrowing,” says Adhil Shetty, CEO, BankBazaar.com.
Here’s a look at the current personal loan rates and charges from some well-known banks, as provided by PaisaBazaar (as of August 14, 2024):
1. HDFC Bank
Interest rate: 10.50% onwards
EMI for Rs 5 lakh: Rs 10,747 onwards
EMI for Rs 1 lakh: Rs 2,149 onwards
Processing fee: Up to Rs 4,999
2. Tata Capital
Interest rate: 10.99% onwards
EMI for Rs 5 lakh: Rs 10,869 onwards
EMI for Rs 1 lakh: Rs 2,174 onwards
Processing fee: Up to 5.5%
3. State Bank of India
Interest rate: 11.35%-15.50%
EMI for Rs 5 lakh: Rs 10,959-12,027
EMI for Rs 1 lakh: Rs 2,192-2,405
Processing fee: 1.50% (minimum Rs 1,000 to maximum Rs 15,000)
4. ICICI Bank
Interest rate: 10.80% onwards
EMI for Rs 5 lakh: Rs 10,821 onwards
EMI for Rs 1 lakh: Rs 2,164 onwards
Processing fee: Up to 2%
5. Bank of Baroda
Interest rate: 11.15%-18.75%
EMI for Rs 5 lakh: Rs 10,909-12,902
EMI for Rs 1 lakh: Rs 2,182-2,580
Processing fee: Up to 2% (minimum Rs 1,000 and maximum Rs 10,000)
6. Axis Bank
Interest rate: 11.25% onwards
EMI for Rs 5 lakh: Rs 10,934 onwards
EMI for Rs 1 lakh: Rs 2,187 onwards
Processing fee: Up to 2%
7. Kotak Mahindra Bank
Interest rate: 10.99% onwards
EMI for Rs 5 lakh: Rs 10,869 onwards
EMI for Rs 1 lakh: Rs 2,174 onwards
Processing fee: Up to 3%
8. Bank of India
Interest rate: 10.85%-14.85%
EMI for Rs 5 lakh: Rs 10,834-11,856
EMI for Rs 1 lakh: Rs 2,167-2,371
Processing fee: 0.50%-1% (minimum Rs 250 and maximum Rs 10,000)
9. Canara Bank
Interest rate: 10.95%-16.40%
EMI for Rs 5 lakh: Rs 10,859-12,266
EMI for Rs 1 lakh: Rs 2,172-2,453
Processing fee: 0.50% (maximum Rs 2,500)
10. Punjab National Bank
Interest rate: 10.40%-17.95%
EMI for Rs 5 lakh: Rs 10,772-12,683
EMI for Rs 1 lakh: Rs 2,144-2,537
Processing fee: Up to 1%
11. HSBC Bank
Interest rate: 9.99%-15.00%
EMI for Rs 5 lakh: Rs 10,621-11,895
EMI for Rs 1 lakh: Rs 2,124-2,379
Processing fee: Up to 2%
12. Federal Bank
Interest rate: 11.49% onwards
EMI for Rs 5 lakh: Rs 10,994 onwards
EMI for Rs 1 lakh: Rs 2,199 onwards
Processing fee: Up to 3%
13. Union Bank of India
Interest rate: 11.35%-15.45%
EMI for Rs 5 lakh: Rs 10,959-12,013
EMI for Rs 1 lakh: Rs 2,192-2,403
Processing fee: Up to 1% (maximum Rs 7,500)
14. Bajaj Finserv
Interest rate: 11% onwards
EMI for Rs 5 lakh: Rs 10,871 onwards
EMI for Rs 1 lakh: Rs 2,174 onwards
Processing fee: Up to 3.93%
15. Punjab & Sind Bank
Interest rate: 10.75%-13.50%
EMI for Rs 5 lakh: Rs 10,809-11,505
EMI for Rs 1 lakh: Rs 2,162-2,301
Processing fee: 0.50%-1%
16. South Indian Bank
Interest rate: 12.85%-20.60%
EMI for Rs 5 lakh: Rs 11,338-13,414
EMI for Rs 1 lakh: Rs 2,268-2,683
Processing fee: Up to 2%
17. UCO Bank
Interest rate: 12.45%-12.85%
EMI for Rs 5 lakh: Rs 11,236-11,338
EMI for Rs 1 lakh: Rs 2,247-2,268
Processing fee: Up to 1% (minimum Rs 750)
18. IDFC First Bank
Interest rate: 10.99% onwards
EMI for Rs 5 lakh: Rs 10,869 onwards
EMI for Rs 1 lakh: Rs 2,174 onwards
Processing fee: Up to 2%
19. Bank of Maharashtra
Interest rate: 10%-12.80%
EMI for Rs 5 lakh: Rs 10,624-11,325
EMI for Rs 1 lakh: Rs 2,125-2,265
Processing fee: 1% (Rs 1,000-Rs 10,000)
20. Karnataka Bank
Interest rate: 13.43%
EMI for Rs 5 lakh: Rs 11,487
EMI for Rs 1 lakh: Rs 2,297
Processing fee: Up to 2% of loan amount (minimum Rs 2,500 & maximum Rs 8,500)
21. IndusInd Bank
Interest rate: 10.49% onwards
EMI for Rs 5 lakh: Rs 10,744 onwards
EMI for Rs 1 lakh: Rs 2,149 onwards
Processing fee: 1.5% – 3.5%
When should you rethink a personal loan?
While personal loans are handy, they’re not always the best option for everyone. Here’s when you might want to reconsider:
1. If your credit score isn’t good, you could end up with high interest rates that make the loan expensive.
2. If your monthly budget is already stretched thin, taking on more debt could make things harder.
3. Sometimes, specific loans like auto or student loans may offer better terms for your needs.
When considering a personal loan, you must weigh the risks and costs involved.
The high interest rates are one of the main concerns. These rates can significantly increase the total amount you repay over the loan term. “Personal loans typically come with shorter repayment periods, ranging from one to five years. Although this may seem manageable, it often results in higher EMIs, potentially straining your monthly budget,” says Shetty.
He goes on to explain, “Another aspect to keep in mind is the impact on your credit score. Personal loans are recorded on your credit report, making timely repayments crucial. Missing even a single EMI can negatively affect your credit score, potentially hindering your ability to borrow in the future. Additionally, some lenders may impose penalties for prepayment or early repayment of the loan, adding to the overall cost.”
Why do people choose personal loans?
Debt consolidation
One of the main reasons people opt for personal loans is to consolidate multiple high-interest debts into a single, lower-interest loan, saving money in the long run.
Home renovation
For homeowners eyeing upgrades or repairs, personal loans can finance home renovation projects without tapping into home equity. This route is especially appealing for those lacking substantial funds or preferring not to use their home as collateral.
Emergency expenses
Life’s unpredictabilities, such as urgent medical bills or sudden necessary repairs, can disrupt your financial stability. A personal loan can offer a lifeline, providing quick access to funds, often within a business day, helping you manage these unforeseen expenses without draining your savings.
Vehicle financing
Personal loans can be used to finance vehicle purchases, offering flexibility without the need for a down payment.
An alternative to payday loans
Personal loans can be a more cost-effective alternative to payday loans, helping avoid the debt cycle.
Moving costs
Moving from one city to another for work or any other reason can be expensive, and a personal loan can help cover those costs.
Large purchases
If you need to make a big purchase, spreading the cost with a personal loan can make it more manageable.
Wedding expenses
Weddings in India are elaborate and characterised by a range of ceremonies and spending. Personal loans can provide the funds needed to plan your dream wedding.
Vacation costs
For those once-in-a-lifetime trips or special vacations, a personal loan can make your travel dreams a reality, offering a way to fund your adventure now and pay over time.
What are the alternatives to personal loan?
Adhil Shetty explains the alternatives to personal loans:
1. Credit card loan: If you have a credit card with a high credit limit, some banks allow you to convert your outstanding balance into EMIs, often at a lower interest rate than a personal loan. However, this option should be used with caution, as credit card loans can still carry high interest rates if not managed properly.
2. Gold loan: Pledging gold as collateral can secure a loan at a lower interest rate compared to personal loans. The gold acts as security for the lender, and the approval process is usually quick, making it a suitable option for urgent financial needs.
3. Overdraft facility: If you have a savings account, your bank may offer an overdraft facility, allowing you to withdraw more than your account balance. Interest is charged only on the utilised amount, typically at a lower rate than personal loans, offering more flexibility and cost-effectiveness.
4. Loan against fixed deposit (FD): If you have fixed deposits with a bank, you can take a loan against them. The interest rate on such loans is usually 1% to 2% higher than the FD interest rate, making it significantly lower than that for personal loans. The FD serves as collateral, ensuring a quick and straightforward approval process.
