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Understanding Rates of interest On Personal Loans


Taking unsecured loans has become a typic for the middle-class Indian today. With expenses sky rocketing and salaries moving at a slower pace, there is little change one can caused by avoid the debt of personal loans. Be it for that further education of the child, purchasing domestic appliances, renovating and repairing one's house, meeting the price of special occasions and weddings; the necessity to borrow a substantial sum of money has been felt amongst almost all strata from the society. It is thus important to comprehend the repayment options and also to know how the interest rates on personal loans are calculated.

personal loan

Unsecured loans for salaried and self-employed individuals

People who are salaried or self-employed and may show a substantial flow of greenbacks, suggesting our prime possibility of repayment over time, can apply for a loan. The status from the company where one is working, credit history of the individual trying to get the borrowed funds and his/her relationship using the bank issuing the borrowed funds are the few other considerations for getting a loan grant. Based on the status on all these, the individual can negotiate for lower interest rates as well as in waiving off processing fee etc. The good thing of a loan is that it can be obtained without the need for any kind of security or collateral, and has a simple process of application and documentation.

Loan rates are varied

Personal loan rates vary across different banks. The range of rates of interest on loans is between 12% and 15%. You will find different ways of calculating interest on loans. Based on exactly what the bank has put on offer, and what mode of calculation is suitable for that person taking the loan, a method of interest rate calculation is set upon.

The various methods for calculating rates of interest on personal loan are:

Flat rates - Obtaining a loan on a flat interest rate is repaying a lot more than a single otherwise would. As in a set rate calculation, the interest is calculated on initial principal amount through the tenure of the loan, the outstanding loan amount is never reduced. Thus, one ends up repaying a lot more than a single would through different kinds of rates of interest used for calculation

Reducing balance interest - Reducing balance interest rates are better to go for, because it works out less expensive than the flat rates. Within this method, the eye on the amount borrowed continues reducing because it gets calculated around the regularly reduced principal amount.

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Floating rate - The floating rate of interest changes as per the marketplace dynamics. It is a high risk repayment method - one can end up paying a lot more or much less compared to amount budgeted for. However, floating rates can be found at lower rates than fixed rates. Thus, a borrower of loan at a floating interest would highly benefit if the market dynamics make the rates of interest go lower.

There are more charges on the loans as well. Processing fees and prepayment charges are a part of every loan.

Depending on the bank one handles, one's requirement and the relationship one shares with the financial institution, the very best personal loan interest rates can be established.

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