Get the Tata Capital App to apply for Loans & manage your account. Download Now


Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer

Tata Capital > Blog > Personal Use Loan > Why Have Personal Loan Interest Rates Dropped So Low?

Personal Use Loan

Why Have Personal Loan Interest Rates Dropped So Low?

Why Have Personal Loan Interest Rates Dropped So Low?

It’s a fact that personal finance interest rates are always subject to fluctuations. And usually vary anywhere between 12% to 24% based on how one meets the personal loan eligibility requirements of the lender.

However, as COVID-19 outbreak sent the economy into a downward spiral, the rates have dropped to a record low of 8%.

How COVID-19 impacted personal finance interest rates?

The COVID-19 induced economic slowdown is one of the primary reasons for the low personal loan interest rate recently. As many faced unexpected salary cuts, reliance on unsecured debts like personal finance also increased considerably.

And in consequence, many NBFCs followed suit with the RBI's policy rate cuts and came forth with various personal finance products, available at reasonable loan terms.

RBI Repo rate cuts

In response to the country's acute financial crisis, RBI had cut down the repo rate by 40 basis points, so that it now stands at 4%.

Repo rate is essentially the rate at which RBI "lends" money to various financial institutions. Any cut in the rate, therefore, reduces the costs at which these financial institutes borrow the money from RBI. And inevitably, lower the interest rates for individual borrowers on term loans like personal loans.

However, the benefits of such rate cuts are only applicable to new loans and those borrowed at a floating interest rate. For personal finance borrowed at a fixed interest rate, the impact of the Repo cuts remains neutral.

But since the interest rates are lowered, credit becomes more easily accessible.

Additional Read: How does the repo rate impact personal loan EMI?

Revival in demand

Cuts in the interest rates are a way to revive the demand for various loan products, including personal finance.

A reduction in the Repo rate also means a reduction in the interest rates of various loans. As a result, the Cash Reserve Ratio or CRR – a portion of the amount, financial institutes deposit with RBI – reduces, so lenders can supply the credit more readily and increase the liquidity in the system.

To take the example of personal finance; a low PL interest rate will increase the demand for personal finance products among interested borrowers. When more individuals avail the personal finance products, there will be a healthy flow of cash in the system, which can alleviate the cash crunch to a favourable extent.

However, do note that while a lower personal loan interest rate will be favourable in terms of lowered EMI payments, the overall cost of credit will also depend on factors such as borrower's CIBIL score, credit history, monthly income, employer reputation, among others.

Additional ReadTop Factors Affecting Your Personal Loan Interest Rates

Therefore, to negotiate the best personal finance terms, you must rely on a reputed company like Tata Capital. Renowned for competitive interest rates and a smooth documentation process, we provide a personal loan for self-employed and salaried individuals, to help them meet a variety of needs comfortably.

Not sure how much amount you should borrow? Our personal loan EMI calculator can help you to determine a suitable loan amount and repayment terms free of cost.

Avail of a custom loan from Tata Capital today!

Leave a Reply

Your email address will not be published. Required fields are marked *