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What does “Interest on loan” mean?

Interest is the price that you pay for borrowing money from someone. When you borrow loan from a lender/ Financial Institution (FI), the lender apart from the processing fee, regulatory charges etc., also charges you interest rate over and above the principal amount borrowed. This is the amount due per period (generally monthly) as a proportion of an amount lent or borrowed (the principal) and is included in your monthly loan instalment. The amount of interest depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent or borrowed.

At IIFL HFL, the Home Loan interest rate start at 8.2% per annum* and may vary depending on several factors. The loan tenor is offered upto 25 years. The interest rate is part of your monthly EMI which is calculated depending on the loan amount borrowed; applicable interest rate and the tenor opted. Rate of Interest offered to borrowers at the time of on-boarding generally depends on a combination of parameters which may include borrower’s credit score and history of repayment on other loans; loan amount; product variant; and the property type.

The rate of interest charged to the customer is linked to the “benchmark PLR” which is determined based on cost of funds, operational expenses of the company and minimum “margin”. The effective rate of interest may vary or fluctuate during the term of the loan especially if there are any changes in PLR.

The parameters like credit scoring, loan amount, profile type etc. contribute to the margin being higher or lower at the time of on-boarding the customer. The rate of interest offered to a particular customer is the summation of this BPLR and the margin.

Types of Interest rate

The Interest Rate levied on home loans can be one of below:

  • Fixed interest rate: Fixed interest rate is where the Home loan is repaid in fixed and equal instalments for the entire loan tenure. Borrowers who opt for such rates need not worry about the fluctuations or changes in the market as the interest will remain fixed and will not change. However, borrowers may not get benefit if rate of interest further reduces.
  • Variable interest rate: Variable interest rate may vary or fluctuate during the term of the loan especially if there are any changes in PLR. . Whenever the PLR changes, the interest rate automatically gets revised. A mixed ROI is also offered by few lenders which is a combination of Fixed and Floating rate. The Financial Institutions, generally to offset their risk, offer Fixed ROI in the beginning of loan and later switch to variable interest rate depending on the repayment by the borrowers.

Calculation of interest rate

The Borrower is required to repay loan in Equated Monthly Instalment (EMI) to the lender every month against the amount borrowed.

The EMI includes the Principal Amount and the Interest Payable on Principal. In other words, the EMI is calculated on the basis of combinations of factors namely principal amount, interest rate, tenure of loan and computation method.

EMI Calculation Formula:

Here, E stands for EMI, P means for principle, R means rate of interest every month. N indicates the tenure of loan. The monthly payable amount remains fixed but with passage of time, you will pay less towards interest and more towards principal.

However, to understand how much EMI you need to shell out, the first thing you need to know is that how much loan can you take. To compute your eligibility, you need to provide few basic personal details such as PAN Card No, Date of Birth and professional details like organization’s name, income status and job tenure. These factors affect the chargeable interest rate on your loan. In order to pay dues on time, you need to calculate the accurate EMI in advance. The EMI helps you to assess whether loan is affordable or not.

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You can quickly arrive at an EMI amount using IIFL Home Loan EMI calculator where all you check what will be the EMI if you take a specific loan amount at say “x%” interest for 20 or 25 years. However, to estimate how much loan amount you can get given your monthly income and other parameters like other EMIs, you must try IIFL Home Loan Eligibility Calculator.

With lower EMIs, attractive interest rates and repayment tenure upto 20 years, IIFL Home Loans help you own your dream house quickly and repay your loan comfortably.

If you have already taken a Home Loan from another bank or NBFC and are unhappy with the service or wish to reduce the EMI burden, you can apply for Balance Transfer and save money.