Here is What You Should Know about Interest Rate in India

Buying a house is a significant financial commitment. It requires a majority of your life's savings, and in most probability, you will also need a home loan to support the purchase. Repaying your home loan will have you consistently pay monthly EMIs through the loan tenure and can easily extend to 15-20 years.

A home loan is a responsibility that will impact your monthly budget. Even a seemingly small change in the interest rate can affect the cost of your loan. Every home loan borrower must understand the factors that influence the interest rate. 

Consider the following to understand better what goes into determining your home loan interest rates and obtain a favorable home loan:

Credit Score

PNB Home loan lenders look at your credit profile before approving your loan application. Your credit score indicates your past relationship with credit. If you have religiously repaid all your dues and in time, your credit score will be in the healthy zone. 

In such cases, lenders will be willing to extend a loan at a competitive interest rate.

If you have missed your credit card payments or have defaulted on your dues, your credit score may not be that favorable. The lender will consider you a risky applicant and may increase the rate. 

It is good to check your credit score before considering a home loan.

Loan Amount

In India, you will find that most banks and housing finance companies increase the interest rate for higher loan amounts. This is to offset the risk associated with approving higher amounts. 

You can avoid this by giving a higher down payment, if possible. It will also reduce the cost of your loan.

Interest Rate Type

There are three types of interest rates for home loans in India: floating, fixed, and mixed. 

A fixed interest rate does not change during your home loan tenure. On the other hand, a floating interest rate syncs with the market and can go up or down. A mixed rate means you get the loan at a fixed rate for some time, and later it becomes floating. 

Most lenders give fixed and mixed rate loans at higher costs to maximize their earnings. It is recommended to compare the interest rates across lenders to get the best deal.

 For instance, you can check the PNB home loan interest rate online to see if it fits your requirements.

External Factors

RBI has mandated that a floating interest rate depends on four external standards:

  • repo rate, 
  • three-month treasury bill rates 
  • six-month treasury bill rates, or
  • a rate published by the Financial Benchmarks India Private Ltd (FBIL). 

Each bank is free to choose any of these benchmarks to decide the home loan interest rate. 

Source of Income

Lenders' priority is to reduce the risk when approving home loan applications. To ensure this, they prefer extending home loans to individuals who have a steady source of income. It is the reason they offer home loans at a lower interest rate to salaried individuals. Individuals get a more favorable deal if they work in the public sector or are government employees. 

Generally, the home loan interest rates increase for self-employed customers. However, if you are a doctor or chartered accountant, there are chances that you will get a favorable interest rate.

Location of the Property

Finally, the location of your home can decide the interest rate for your home loan application. Houses in a locality with good connectivity and amenities will have a higher resale value. 

You may want to buy an affordable house in a less-desired neighborhood. However, the properties in such areas generally have a lower resale value.

Similarly, new properties are considered more valuable than older or resale houses. Lenders prefer giving home loans for attractive houses in good localities and will also charge lesser interest rates for them.


Buying a house is one of the most crucial financial decisions of your life. It is advisable to be doubly sure of this commitment and do exhaustive research on the interest rates. You can negotiate and get yourself the best deal when you know what the competitors offer. PNB Home loan is one of the most attractive and competitive home loans in the market and can help you buy the home of your dreams.

Author's Bio: 

Naman Sharma is a freelance blogger and digital marketing expert.