Kolkata: On February 7, Sanjay Malhotra, the new governor of Reserve Bank of India (RBI), announced the decision to cut Repo Rate by 25 basis points and as a result the key policy rate that decides all loans rates in the country inched down from 6.50% to 6.25%. This possibly marks the beginning of a declining interest rate cycle and a SBI Research Report has stated that it expects a further cut of 50 basis points later in 2025.
Needless to say, the rate cut will drive down interest rates on all loans this year. Be it home loan, auto loan, personal loan, all rates are linked to the Repo Rate and the EMIs will come down. Also, banks will reduce interest rates on all these loans. Since personal loans fuel instant gratification of many of the younger generation, it would make more sense to go for a personal loan now than ever in the past two-three years. Let’s find out what are the essentials of a personal loan.
Interest rate on personal loans
Since a personal loan is an unsecured loan, the interest rates on personal loans are significantly higher than that on home loans and car loans. The interest rates on personal loans in major banks start from approximately 10.5% and can go up till 22.50% or higher. Therefore, one has to be extremely cautious of the interest rate while applying for a personal loan. One percentage point difference in interest rates can mean a significant difference in the eventual payout. For example, if you take Rs 5 lakh loan from Axis Bank to be repaid in 24 months, its personal loan EMI calculator shows Rs 23,537 as the EMI payable on 12% interest. If the interest rises to 13%, the EMI rises to Rs 23,771.
Repayment tenure of loan
The loan tenure is important since you have to pay EMIs throughout the repayment period. Typically, a personal loan has to be repaid over 60 months but some lenders do allow a maximum repayment period of 7 years.
Amount of loan
One does not get unlimited personal loans and the ceiling is usually tied to the monthly income of the applicant. A few banks could sanction a maximum of 20 times of your monthly income, point out banking experts. However, it is prudent not to apply for a loan towards the upper end of the loan band that one is eligible for. Since personal loans are the most expensive loans in the market, one should try to minimise the amount one takes through this route.
One very important thing to remember about personal loans is that the applicant has to makintain a good credit score. If an applicant has a sxcore of 700 and above (on a total score of 900), most banks would easily sanction his/her application.
Personal loans are one of the greatest enablers for the modern day consumer. Since these are available at a very short notice and need no collateral assets as security, they are the dream of any consumer, who loathe to wait to buy their dream gadget or go on a dream vacation. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
