Calculate the EMI on a personal loan and see the real cost once interest is counted. Compare tenures and rates before you accept an offer.
Why is a personal loan rate so much higher than a home loan?
There is nothing for the lender to repossess. A home loan is secured by the house, so the bank can accept 8% to 9%. A personal loan is unsecured, so rates commonly run 11% to 24% and depend heavily on your credit score and employer.
What does the processing fee do to the real rate?
It raises the cost more than people expect, because you pay it up front but borrow for years. A 2% fee on a 3 year loan at 14% pushes the effective annual rate to roughly 15.4%. Always compare offers on the total repayment plus fees, not on the quoted rate.
Can I foreclose a personal loan early?
Usually yes, after a lock-in of six to twelve EMIs, but expect a charge. Personal loans are fixed rate, and the RBI rule that bars foreclosure charges covers only floating rate loans to individuals. Lenders typically charge 2% to 5% of the outstanding principal.
Does a longer tenure help?
It lowers the EMI and raises the cost sharply. The ₹3,00,000 loan above costs ₹69,118 in interest over 3 years and ₹1,18,829 over 5 years. On a high rate loan, every extra year is expensive - take the shortest tenure you can service.
What credit score do I need?
Most banks want 750 or above for their best rates. Between 700 and 750 you will usually be approved at a higher rate. Below 650 you may be declined or pushed toward an NBFC charging 20% or more. Check your score before applying, because each application leaves a hard enquiry.
Is there a cheaper option than a personal loan?
Often. A loan against a fixed deposit, gold, mutual funds, or an insurance policy is secured, so it costs far less - typically 1% to 2% above the FD rate. A top-up on an existing home loan is cheaper still. Use a personal loan when you have no asset to borrow against.