Applying for an online instant personal loan is a convenient way to get access to immediate funds. However, one important factor that you as a borrower need to consider is the personal loan rate of interest. That’s because your monthly repayments, known as Equated Monthly Instalments (EMIs), will be based on the interest rate charged by the lender, and it can significantly impact the total cost of your loan. On that note, here is a closer look at how interest rates can impact your repayment.
Personal loan rate of interest
The interest rate on a personal loan is the amount of money that you will have to pay in addition to the principal or the amount of money that you borrow. The interest rate is expressed as a percentage of the principal and is typically payable over the term of the loan. The interest rate can vary depending on the lender, the borrower’s profile, and the terms of the loan.
How do interest rates affect your repayment?
Your loan repayment amount comprises two parts: the principal and the interest. Principal is the total borrowed amount while interest is the fee that you are paying for borrowing that money. The higher your interest rate, the higher your monthly repayments will be because a larger portion of each repayment will go towards paying off the interest.
For example, if you take an online instant personal loan of Rs 1 lakh with an annual interest rate of 11.5% and a tenure of three years, your monthly repayment will be approximately Rs 3,298. However, if the interest rate increases to 15%, your monthly repayment will increase to Rs 3,469.
Will a long-term or short-term tenure help save more?
Usually, a short-term personal loan has higher interest rates than a long-term loan. However, the total amount of interest paid is lower since a short-term personal loan is repaid faster.
Short-tenure loans are best for borrowers who can afford higher EMIs and want to pay off their loans as quickly as possible. A long-term loan is ideal for those who want more flexibility and spread the repayments over a longer period. However, you will end up paying more in interest over the tenure of the loan.
Also, note that a low CIBIL score for a personal loan may attract higher interest rates, so it’s advisable to work on improving your CIBIL score before applying for one.
Using an online loan EMI calculator to find the lowest interest rate loans
Interested in taking a personal loan but not sure about the interest rate you will get? IDFC FIRST Bank’s personal loan EMI calculator can help you calculate your EMI in just three simple steps.
Simply enter the loan amount, tenure, and interest rate into the fields provided. The calculator will then generate an estimate of your monthly instalment. You can use this information to compare different lenders and choose the best option with a competitive interest rate and favourable tenure.
Closing thoughts
While it’s important to understand how interest rates work, you should also compare different lenders to explore what other offers you may be eligible for. Also consider other factors such as eligibility criteria, pre-payment facility and charges, repayment options, etc., to find the best personal loan for your financial needs.
