Personal Loan Calculator

The most expensive borrowing most people do

A ₹5,00,000 personal loan at 14% over five years costs ₹11,634 a month and ₹1,98,048 in total interest — roughly 40% of the amount borrowed, on a loan that is over in five years.

Compare that to a home loan at 8.5%, and the gap is not an accident. A personal loan is unsecured: there is no house, car or gold the lender can seize if you stop paying. That risk is priced into the rate, which typically runs 11% to 24% depending on your credit profile, employer and income.

That pricing has a useful implication. The rate you are offered is a fairly direct statement of how risky the lender considers you — and it is negotiable in a way most borrowers never test.

How the EMI is derived

Personal loans are ordinary reducing-balance loans:

EMI = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1)

with r the monthly rate (14 ÷ 12 ÷ 100 = 0.011667) and n the number of months (60).

Working it: (1.011667)⁶⁰ = 2.0048. Numerator: 5,00,000 × 0.011667 × 2.0048 = 11,695. Denominator: 1.0048. Divide: ₹11,634 a month.

Total paid: 11,634 × 60 = ₹6,98,048, of which ₹1,98,048 is interest.

What drives your rate

Credit score is the dominant factor. Above 750 generally unlocks the best available rates; below 700 either raises the rate substantially or results in rejection. The spread between a 780 score and a 690 score is commonly 4–6 percentage points, which on this loan is roughly ₹90,000 of interest.

Employer category. Most lenders maintain internal lists, and employees of large listed companies and government bodies get materially better pricing than those at unlisted small firms.

Income and existing obligations. Lenders assess your total EMI burden against net income, generally wanting everything combined below 50%.

Relationship with the bank. An existing salary account or deposit relationship frequently produces a pre-approved offer below the advertised rate.

What to check beyond the rate

Processing fee — typically 1% to 3% of the loan, deducted upfront, so a ₹5,00,000 loan with a 2% fee disburses ₹4,90,000 while you repay interest on the full amount. This raises the effective cost meaningfully above the headline rate.

Prepayment terms. Personal loans are usually fixed-rate, so the RBI prohibition on foreclosure charges — which applies to floating-rate loans to individuals — does not protect you. Penalties of 2% to 5% of the outstanding are common, and many lenders impose a lock-in of six to twelve months before prepayment is permitted at all.

Insurance bundled into the loan, financed into the principal so you pay interest on it for the full tenure.

When it makes sense, and when it does not

It is defensible for a genuine, time-bound need where no cheaper secured option exists: a medical emergency, an unavoidable relocation, or — the strongest case — consolidating credit card debt. Cards charge 36% to 48% annualised, so refinancing at 14% is a large and immediate saving.

It is a poor instrument for discretionary spending, for investing (borrowing at 14% to chase an uncertain 12% is a guaranteed loss of 2% plus all the risk), and for anything where a secured alternative exists. A gold loan at 9–12%, a loan against securities, or a top-up on an existing home loan at 9–10% are all materially cheaper if you have the collateral.

Common mistakes

Choosing the longest tenure for a lower EMI. On unsecured debt at 14%, extending from three years to five adds roughly ₹86,000 of interest.

Comparing only headline rates. A 13% loan with a 3% processing fee can cost more than a 14% loan with no fee.

Assuming prepayment is free. It generally is not on fixed-rate personal loans.

Taking one to invest. The arithmetic almost never works, and the risk is entirely yours.

Applying to several lenders at once. Each generates a hard credit enquiry, and a cluster of them lowers your score at precisely the moment you need it high. Use eligibility checkers that perform a soft enquiry instead.