When you need quick money for an emergency, wedding, medical expense, or home improvement, a personal loan can help. But here’s the problem: interest rates vary widely across banks and lenders. The difference between a 9% loan and a 15% loan could cost you tens of thousands of rupees in extra charges.
So which loan has the lowest interest rate? And more importantly, how can you get that rate for yourself?
What is a Lowest Interest Rate Loan?
A lowest interest rate loan is an unsecured or secured borrowing product where the lender charges the minimum percentage of the borrowed amount as interest.
Generally, these minimum rates apply only to borrowers with excellent credit scores above 760, stable income, and strong financial profiles.
Which Loan has the Lowest Interest Rate in India?
Home loans and gold loans provide the lowest interest rates in India, starting between 7.00% and 8.05% per year. These are secured loans where assets like gold or property act as collateral. Because the lender has less risk, they charge you a lower price.
On the other hand, unsecured personal loans cost more, usually starting at 9.75%.
However, the actual rate you receive depends on your credit score, income level, employment type, and loan amount.
A borrower with a 750+ credit score and stable income may qualify for starting rates, while someone with a low credit score and weaker financial profile might pay 2-3% more even from the same lender.
The question isn’t just about finding the lowest advertised rate. You need to understand what affects those rates, how different loan types compare, and what hidden costs could eat into your savings.
Why Comparing Loan Interest Rates Matters?
Loan interest rates vary widely across lenders, even for the same borrower profile. Comparing them allows you to identify the most cost-effective option instead of accepting the first offer available. Let’s understand it with an example.
If you borrow ₹5 lakh for 5 years:
- At 9% interest rate: Your EMI would be around ₹9,495, and total interest cost would be ₹69,700
- At 15% interest rate: Your EMI would be around ₹11,375, and total interest cost would be ₹1,82,500
That’s a difference of ₹1,12,800 in interest costs alone. You’re paying 162% more just because you didn’t compare rates carefully.
Banks and NBFCs have different lending criteria, risk assessments, and profit margins. Some charge higher interest but lower processing fees. Others do the opposite. If you pick the wrong lender without proper comparison, you could waste thousands of rupees.
The good news? Comparing rates takes just a few minutes with online EMI calculator, and it can save you a significant amount of money over your loan tenure.
Which Banks Currently Offer the Lowest Loan Interest Rates?
Below are the lenders which are offering the lowest personal loan interest rates:
- Mahindra Finance: Starting at 8.00% p.a.
- Union Bank of India: Starting at 8.75% p.a.
- Kotak Mahindra Bank: Starting at 9.98% p.a.
- HSBC Bank: Starting at 9.95% p.a.
- Axis Bank: Starting at 9.99% p.a.
- HDFC Bank: Starting at 9.99% p.a.
- IDFC FIRST Bank: Starting at 9.99% p.a.
- Canara Bank: Starting at 9.70% p.a.
- Central Bank of India: Starting at 9.65% p.a.
- Poonawalla Fincorp: Starting at 9.99% p.a.
These are starting rates only. Your actual rate will be higher based on your financial profile.
What Factors Determine Your Loan Interest Rate?
Lenders don’t assign interest rates randomly. They look at multiple factors to decide how much risk you represent and what rate to charge.
- Credit Score: Your credit score has the biggest impact on interest rates. A CIBIL score of 750+ qualifies for the lowest rates, while scores below 700 can increase rates by 2–4% due to higher default risk.
- Income & Employment Stability: Lenders assess your income-to-EMI ratio, usually capping EMIs at 40–50% of monthly income. Salaried employees at reputed companies often get lower rates than self-employed borrowers due to stable income.
- Loan Amount & Tenure: Larger loan amounts may attract slightly lower rates, while longer tenures increase total interest cost, leading lenders to charge higher rates for extended risk.
- Existing Relationship with the Bank: Having a savings account, credit card, or previous loan with a bank can help you secure preferential interest rates due to established trust.
- Current Loan Obligations: High outstanding loans or credit card dues increase perceived risk, resulting in higher interest rates or reduced approval chances.
- Type of Loan: Secured loans (like home loans) have lower rates than unsecured loans (like personal loans) because collateral reduces lender risk.
How to Get the Loan at Lowest Interest Rate?
Getting the lowest loan interest rate requires strategy and preparation. Below are the proven ways you can try:
Improve Your Credit Score First
If your credit score is below 750, delay your loan application by 3-6 months and work on improving it. Pay all bills on time, reduce credit card balances, and avoid applying for multiple loans within a short period.
Even a 50-point improvement in your score can reduce your interest rate by 0.5-1%. That results to significant savings over 5 years.
Consolidate Your Debts
If you have multiple outstanding loans or credit card debts, pay them down before applying for a new loan. This lowers your debt-to-income ratio and makes you more attractive to lenders.
Compare Rates Across Multiple Lenders
Don’t just walk into your bank and accept their offer. Contact 5-10 lenders, including large banks, smaller banks, and digital lenders. Use online platforms that let you check your eligibility without hurting your credit score.
The difference between the highest and lowest rate you receive could be 1-3%, which is substantial.
Negotiate Your Rate
Banks show flexibility on rates, especially for customers with good financial profiles. If you have quotes from competitors, mention them during discussions. You might secure a rate 0.25-0.5% lower than the standard offer.
Apply With a Co-Applicant
Adding a co-applicant with a better credit score or higher income can improve your eligibility and get you a lower rate. This works well if your spouse or parent has a stronger financial profile.
Choose the Right Tenure
Shorter loan tenures result in less total interest but higher EMIs. A 3-year loan will cost you less in total interest than a 5-year loan at the same rate.
However, only choose a shorter tenure if you can afford the higher monthly payment.
Frequently Asked Questions
Yes, but only if you qualify. Mahindra Finance and a few public sector banks offer rates starting at 8-9% p.a. However, these are the minimum rates for their best customers. You’ll need an excellent credit score (760+), stable employment, and adequate income to qualify.
Not necessarily. A loan with a 9.5% interest rate but 0% processing fee might be better than one with 9% interest and 3% processing fee. Always compare the total cost, not just the base rate.
Yes. If you have quotes from competitors, show them to your lender. Lenders have some flexibility to match or beat competitor rates. This works especially well if you have a good relationship with your bank.
Only if you can comfortably afford the higher EMI. A shorter tenure costs less total interest but strains your monthly budget. If the higher EMI forces you to miss payments, you’ll end up paying penalties and damage your credit score. It’s better to choose a tenure where the EMI is 30-40% of your monthly income.
Yes, significantly. Personal loan rates start at 8-10% while credit cards charge 24-40% annually. If you’re carrying credit card debt, a personal loan to consolidate that debt will save you substantial money.
It depends on future interest rate movements. Floating rates are usually 0.5-1% lower initially, but if rates increase, your advantage disappears. For stability and predictability, most borrowers prefer fixed rates.
Conclusion
In brief, finding the lowest interest rate requires a bit of research, but the savings are worth the effort. Whether it is a long-term home loan from a bank or a quick personal loan for an urgent cash need, knowing your options helps you borrow smarter.
