Is Personal Loan Expensive? Here’s What You Must Know About Personal Loan Cost
Personal loans are convenient and quick forms of credit but can be expensive depending on interest rates, fees, and your credit profile. Understanding the components of personal loan cost is essential to make informed borrowing decisions.
What Determines the Cost of a Personal Loan?
Interest Rates:
Personal loan interest rates in India typically range from about 9.99% to 24% per annum depending on your credit score, income, lender, and loan tenure. Public sector banks like SBI offer rates around 10.3% to 15.3%, while private banks and NBFCs may charge higher rates up to 30% in some cases.
Processing Fees:
Lenders charge processing fees usually ranging from 0.5% to 3.93% of the loan amount, often non-refundable. This cost adds to the loan’s overall expense.
Prepayment and Foreclosure Charges:
Some lenders impose fees if you repay the loan early, increasing your total cost. However, many banks waive foreclosure charges after a minimum number of EMIs.
Tenure:
Longer tenures reduce EMI but increase total interest paid. Shorter tenures mean higher EMIs but lower overall interest expense.
Is Personal Loan Expensive Compared to Other Loans?
Personal loans generally have higher interest rates than secured loans like home or auto loans because they are unsecured (no collateral). This increases lender risk, reflected in higher rates and fees. However, compared to credit cards or payday loans, personal loans often offer relatively lower interest rates and structured repayments.
Tips to Minimize Personal Loan Costs
Maintain a good credit score to qualify for lower interest rates.
Compare offers from multiple banks and NBFCs; rates can vary widely.
Negotiate processing fees or seek loans with no processing charges.
Opt for shorter loan tenures to reduce interest outgo.
Avoid unnecessary prepayment penalties by checking lender policies.
When Does a Personal Loan Become Expensive?
A personal loan may be expensive if:
You have a low credit score, leading to higher interest rates.
You borrow from NBFCs or private lenders charging steep rates or hidden fees.
You choose a long tenure without assessing total interest costs.
Processing and other ancillary fees are high relative to loan size.
Frequently Asked Questions (FAQ)
Q1: What is the typical personal loan interest rate in 2025?
It ranges mostly between 9.99% and 24% per annum, varying by lender, creditworthiness, and loan amount.
Q2: Are there any hidden costs besides interest?
Yes, processing fees, documentation charges, and possible prepayment penalties can add to loan costs.
Q3: Can a personal loan become cheaper with a better credit score?
Absolutely. Better credit scores often unlock lower interest rates and better loan terms.
Q4: How can I compare personal loan offers effectively?
Look beyond interest rates; consider processing fees, prepayment options, tenure flexibility, and customer service before deciding.
Q5: Should I always take the lowest interest rate offer?
Not necessarily. Evaluate the entire cost structure and loan conditions to ensure affordability and transparency.
Published on: July 28, 2025
Published by: PAVAN
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