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Tata Capital > Blog > How does a Low Rate Regime impact the ‘Total Interest’ of your Personal Loans?

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How does a Low Rate Regime impact the ‘Total Interest’ of your Personal Loans?

How does a Low Rate Regime impact the ‘Total Interest’ of your Personal Loans?

There is no doubt that the current rates being offered for personal loans are among the lowest in last many years.

Some credit for such low rates can go to the unexpected event of demonetization. The remaining is mostly due to an under control inflation which has allowed policy makers to reduce key policy rates that eventually decide borrowing rates.

Now lower interest rates mean lower personal loan EMI. But that is not the only thing you benefit from. It can also save you thousands of rupees in total interest paid as well as help you clear your loans before its original term.

Lets see how interest rates affect your personal loan dynamics.

Suppose you wanted to take a personal loan of Rs 10 lac personal for 4 years. The current rate being offered is 16%. But earlier (before rates fell), the same loan from the same lender was available at 18%. Lets see how this drop of 2% in personal loan interest rates can help you save some money:

For Personal Loan at 18%
EMI – Rs 29,375
Interest Paid – Rs 4.1 lacs

For Personal Loan at 16%
EMI – Rs 28,340
Interest Paid – Rs 3.6 lacs

Now as you might have noticed, the change in EMI is just about one thousand. But when it comes to total interest you pay during the course of loan, you save almost Rs 0.5 lac. And that is not a small amount. Total interest paid is the amount borrowers pay over and above the principal loan amount. So the lower it is, better it will be for them. Isn’t it?

Infact, if you are ready to pay a higher EMI (that of 18%) even for a loan that you are taking at 16%, you can reduce your loan tenure by few months. So you will be relived of your loan burdened much earlier than what would originally would have possible.

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