Interest Rates & Processing Fees for Personal loans in India
Personal loan interest rate
Personal loan interest rates offered by Cashkumar are based on the analysis of your individual, credit and financial data. They are dynamic and can differ according to the risk category of a profile. Since the loans are smaller, the overall interest rates are higher than traditional sources, but the shorter tenure leads to a lesser cumulative interest burden. Other advantages which make this a great personal loan deal for you are features like zero pre-closure, online process and quick disbursal times.
Cashkumar charges a flat interest rate of 18% to 24% for loans approved on the platform. The interest rate is determined based on the risk category of a borrower which is determined by our proprietary credit algorithm. Some of the factors on which the interest rate is calculated include salary, company, experience, housing type, credit score, repayment history, average bank balance, banking history, account behaviour etc. We also use alternate data to come up with a comprehensive risk profile which is then used to calculate the interest rate we can offer for a loan.
Personal loan processing fees
Processing fees for a Cashkumar personal loan are collected as a flat charge or a percentage of the loan amount. These are charged to compensate for all the processes undertaken by us in dispensing the loan including credit checks, financial analysis, customer support, operations as well as lender acquisition. In certain situations, we would offer specific discounts on processing fees if there is a direct tie-up with your organization or during special occasions. Note that the processing fee attracts taxes, and these will be charged extra on the total amount. This fee is not charged upfront and deducted from the loan amount at the time of disbursal. Cashkumar charges a fee of Rs. 2,000 or 4% of the loan amount (excluding taxes), whichever is higher as processing fees on its personal loans. Repeat loan applicants with good repayment track are also offered a special discount of their personal loan processing fees along with being eligible for a higher amount.
Flat vs Reducing interest rates
Interest is a portion of the EMI over and above the principal amount which is repaid to the lender as consideration for using their money. Interest rate is usually depicted as a percentage of the loan which is calculated annually also known as Annual Percentage Rate (APR). Each EMI repayment has a portion which goes towards the principal amount and the rest is allocated to interest.
There are two ways in which rates are calculated by lenders to help determine interest on a loan. The first is calculation of interest on the initial principal and the other calculates interest on the outstanding balance.
Reducing or Diminishing Rate of Interest
In this case the interest rate is calculated on principal amount outstanding at the end of a specific period. As detailed before, every EMI contains a portion that is adjusted against the principal and the balance goes towards interest. Under reducing balance the interest for the next EMI is always calculated on the outstanding principal in the loan after deducting the amount already paid.
For example, assume a loan amount of Rs 5,00,000 with an interest rate of 15% which needs to be repaid in 5 years. The EMI in this case would be Rs 11,895 per month. In the 1st year, a total EMI of Rs 1,42,740 is paid of which Rs 72,596 is towards principal and the balance Rs 70,144 towards interest. Interest the next year is calculated at 15% only on the balance principal amount i.e. Rs 4,37,404. Using this logic, a borrower benefits if a part-payment offer is available as reduced principal will lead to lower EMIs. Most banks and NBFCs offer an interest rate which is based on the reducing balance method
Flat Rate of Interest
In this case the rate is calculated on the initial principal amount without accounting for the principal repaid. This method of interest calculation results in a higher EMI and generally used for short-term loan where the principal is low. Private lenders and P2P companies mostly rely on this method for interest calculation.
Assuming a loan of Rs. 1,00,000 loan at a 10% rate, the interest accrued every year would be 10,000. If the tenure of the loan is 3 years, the combined amount of principal and interest would amount to Rs 1,00,000 + Rs, 30,000 which is Rs 1,30,000. This will be divided by 36 months to arrive at an EMI of Rs. 3,612 per month. Under the reducing balance approach this EMI would amount to Rs 3,227 per month.
You can check the Cashkumar Flat Rate vs Reducing Rate calculator for more information.