How it works & FAQs
The math behind the numbers, plus answers to the questions we hear most often.
Why is personal loan interest so high?
Personal loans are unsecured — no collateral is pledged. Lenders price this risk into the rate, which typically ranges 10–24% p.a. for prime borrowers, compared to 8–10% for secured home loans.
What's the difference between advertised rate and effective rate?
The advertised rate is the annual interest rate on the reducing balance. The effective rate (EIR) is higher because it accounts for the processing fee and other charges amortised over the loan tenure. Compare lenders using EIR for an apples-to-apples view.
Is flat or reducing-balance interest used?
All regulated Indian lenders must use reducing-balance (diminishing balance) interest — this calculator uses that. Flat-rate loans charge interest on the full principal for every EMI, which can make the effective rate nearly double. Avoid lenders who quote flat rates without disclosing EIR.
Can I prepay or foreclose early?
Yes. RBI mandates zero foreclosure charges for floating-rate personal loans. Fixed-rate loans may carry a foreclosure fee of 1–5% of outstanding balance. Always verify before signing — foreclosure charges can offset the interest saved from early payoff.