Personal Loan

What Is An Acceptable Interest Rate For A Personal Loan?


Personal loans are highly helpful during financial emergencies. It is indeed one of the most common loans. The interest rate for personal loans ranges from 8-30% or sometimes even above. So, it is important to know the acceptable rate before applying.

The interest rate on personal loans relies on several factors. Since the loan is unsecured, the interest rate is usually higher. Credit score, income, amount, repayment time, and tenure are the basis for interest rate calculation.

This guide will help you to learn about the acceptable interest rate. This will help you to get a personal loan at a competitive rate.

Acceptable personal loan interest rate

India’s average interest rate for personal loans is around 10.49% per annum. You will get a lower interest rate with the public sector banks. The rate offered by the private banks is usually high. 

But based on the credit score and financial status, the interest rate for personal loans will change. The acceptable interest rate on a personal loan ranges from 8-15% per annum. If you are offered a rate above this, you need to know the factors that might have impacted your interest rate.

Types of interest rates for personal loans

There are broadly two types of the interest rate applied by financial institutions:

1. Fixed or Flat Rate Of Interest

Under this, the interest rate on personal loan is fixed and will be constant during the entire loan tenure. It is relatively higher than the variable rate of interest. The EMI is constant in this case. The entire tenure will remain the same.

2. Floating Interest Rate

This is an interest rate that can change during the loan tenure. Any change in a bank’s lending rate or market volatility can change the interest rate. If the rate falls, it will reduce your EMI. The EMI will be high if the rate increases.

Factors affecting interest rate on personal loan

Various factors affect the interest rate on a personal loan. The top factors are as follows:

  • Credit Score

Your credit score is the most important factor in determining the interest rate. It defines your creditworthiness and repayment ability. A credit score above 750 is considered to be the best. It will help you get a low-interest rate for a personal loan. A low credit rate can lead to the rejection of your loan application. 

  • Your Income

Your income plays an important role in deciding the interest rate for a personal loan. It decides the amount you can get. The higher the income is, the lower would be the interest rate. Higher income is a sign of timely and prompt repayment of the loan amount. 

  • Repayment History

Apart from checking your credit score, lenders also check your repayment history. The check is usually conducted for the EMIs paid during the last 12 months. It is to check whether your repayment was timely or not. If repayment is on time, you could always ask for a lower interest rate on personal loan.

  • Number Of Defaults

Financial institutions also check your default rate before sanctioning a personal loan. The application is rejected in most cases if your default rate is high. Defaults are a sign of a financial issue, which makes repayment of the loan difficult. This makes you a risky candidate for loan disbursal.

  • Debt-to-income (DTI) Ratio

The DTI is the overall depictor of your repayment capability. It calculates the total amount of debt you have against your income. The higher the ratio, the lower your ability to repay the debt. A lower DTI ratio ensures that you have a surplus to pay off your existing debt. It increases your possibility of getting a new loan at a lower rate of interest.

  • Relationship With Bank

Applying for a personal loan becomes easier if you have a long relationship with the bank. Your financial history and creditworthiness are easily available with the bank. Also, there is a trust factor in the relationship. Based on this, you might get a lower rate of interest too.

  • Your Employment Type

The company for which you are working also plays a crucial role in your interest rate for the personal loan. The rate of interest will vary for permanent and contractual employees. Also, organisations with high stability will help lower the interest rate for employees working with them.

Tips to get an Acceptable Interest Rate for a Personal Loan

If you are looking for an acceptable interest rate for personal loan, here are some tips that can help you.

  • Ensure to maintain a high credit score, preferably above 600.
  • Compare personal loans offered by different lenders to find the best interest rate you can get.
  • There are some seasonal offers where lenders offer you a lucrative interest rate for personal loans. Look for those offers.
  • Discuss the fees or interest rate with your lender if you maintain a high credit score and long-term relationship.
  • Look if you have a pre-approved offer on a personal loan. In that case, the interest rate on personal loans will be lower.
  • Check the method of interest calculation used by the lender.
  • Always confirm the additional charges, fees, and nominal annual percentage rate. This will be charged to your loan and added to the cost.

If you still do not find an acceptable interest rate for personal loan, look for the red flags in your borrower profile. You should work on the red flags to remove them. This will increase your chances of getting a better interest rate for loans.


A personal loan is an unsecured loan offered based on your documents and credit history. This loan is disbursed fastest and can support your financial needs. When comparing the interest rate on personal loans, look at all the factors to get the right estimation. 

There is no doubt that the acceptable interest rate for a personal loan ranges from 8-15% per annum. But this rate is based on numerous factors. If you have a good borrower profile but need a better interest rate, you should connect with other lenders to get a fair comparison.

To learn more about the acceptable interest rate for personal loans, you can check Piramal Finance