How to Compare Personal Loan Offers (Look at APR, Not the Rate)

Personal loan ads show the interest rate in big letters. The fees, GST and insurance are in the fine print. To compare offers fairly, you need the total cost and the APR.

What makes up the cost

• Interest: worked out on the reducing balance; shows up in your EMI
• Processing fee: 0.5% to 3% of the loan, plus 18% GST
• Insurance: often added by default; usually optional
• Other charges: documentation, stamp duty, late payment and bounce charges
• Foreclosure charges: if you close early, often 2 to 5% of what's left

APR: the one number to compare

APR (annual percentage rate) is the yearly rate after including fees. Because fees are taken out on day one, you receive less than the loan amount but repay EMIs on the full amount. That pushes the real rate above the headline rate. RBI-regulated lenders must show the APR in the Key Fact Statement (KFS) before you sign.

A worked example: ₹5 lakh for 36 months

1. Bank A: 10.99%, 1.5% fee. EMI about ₹16,370; fees with GST ₹8,850; APR about 12.2%
2. NBFC B: 13.75%, 2% fee plus ₹3,500 insurance. EMI about ₹17,030; fees ₹15,300; APR about 15.9%
3. Bank C: 11.05%, 1% fee. EMI about ₹16,380; fees ₹5,900; APR about 11.9%
4. App D: 18%, 3% fee plus ₹1,200. EMI about ₹18,080; fees ₹18,900; APR over 20%

Bank C is cheapest even though Bank A's rate is lower, because of the smaller fee. The gap between the best and worst offers is over ₹70,000.

Red flags

• Lenders asking for an upfront "approval fee" before disbursal
• Apps that want access to your contacts and photos
• No clear name of the bank or NBFC lending the money
• Pressure to sign today

Borrow less, borrow smarter

1. Check if a top-up on your home loan or a loan against FD is cheaper.
2. Keep the EMI under about 15 to 20% of take-home pay if you already have other loans.
3. Choose the shortest tenure you can afford; it cuts total interest.

Before you sign, ask for these in writing

1. The Key Fact Statement with the APR
2. The full repayment schedule
3. Every fee, including GST, insurance and documentation charges
4. Foreclosure and part-prepayment rules
5. What happens if an EMI bounces: the charge and the penal interest

If any lender won't give these clearly, that alone is a good reason to choose another.

Our Personal Loan Comparison Sheet works out EMI, fees with GST, total cost and APR for up to eight offers and ranks them for you.