Personal loan EMI: what you're actually paying
A personal loan is an unsecured loan — no collateral needed. Banks and NBFCs charge higher rates than home or car loans to compensate for that risk. Understanding the EMI and total interest before signing is critical.
How personal loan EMI is calculated
The EMI formula is the same as any amortised loan:
EMI = P × r × (1+r)ⁿ / [(1+r)ⁿ – 1]
Where: P = principal, r = monthly rate (annual rate ÷ 12 ÷ 100), n = tenure in months
At 14% p.a. over 5 years, roughly 40% of total repayment is interest. At 20% p.a., that rises to 57%.
Typical personal loan rates in India (2025)
| Lender type | Typical rate | Best rate for |
|---|---|---|
| Public sector banks (SBI, BoB) | 11–13% | Govt employees, high income |
| Private banks (HDFC, ICICI, Axis) | 12–18% | Salaried with 750+ CIBIL |
| NBFCs (Bajaj, Tata Capital) | 13–20% | Self-employed, lower CIBIL |
| Fintech lenders (MoneyTap, Kreditbee) | 16–24% | Fast disbursal, lower CIBIL |
5 ways to reduce your personal loan cost
- Negotiate rate before disbursement — banks have headroom, especially for existing account holders
- Prepay when possible — RBI allows prepayment after 12 months; saves significant interest
- Opt for shorter tenure — EMI is higher but total interest drops sharply
- Balance transfer — switch to a lender offering lower rates; check processing fee math
- Borrow only what you need — interest on the margin you don't use still accrues