Personals loans’ rates, unlike the floating home loans’ that are dependent on the Reserve Bank of India’s (RBI’s) rate action, are fixed for the entire time period. Any fluctuations that occur in RBI’s rates will not have an effect on the personal loans.

According to Mahesh Dayani, the country head of retail assets in ING Vysya Bank, banks are getting behind the non-secure personal loans because they want to increase their share of retail loans. Moreover, since personal loans are need based, the borrowers are willing to pay a premium, which in turn, offers the banks a couple of more basis points compared to home loans.

Other little annoyances are the processing fees and pre-payment penalties. The banks tend to charge processing fees for verification, stamp duty charges for legal agreements and such on the sanctioned amount, which kind of negates the benefits the low interest rates provide. Apart from that, you should also look out for the pre-payment penalty the banks dish out which puts off borrowers who are capable of repaying the loan much earlier. “The interest paid plus the pre-payment penalty may be more than the original amount and interest that the borrower was supposed to pay to the bank on repayment”, says Yashish Dahiya, CEO and co-founder of Policybazaar.com

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