How to use this tool, and where to find each number
Take the figures from each lender's Key Facts Statement (KFS), not from an advert or a phone call. Since October 2024, RBI requires a KFS for every retail and MSME term loan, in a standard format, before you sign. For each offer enter:
- Loan amount as sanctioned, before any deduction.
- Interest rate and whether it is fixed or floating. For floating, note the benchmark (repo rate, MCLR) and the spread.
- Tenure in months.
- Processing fee as a percent of the loan. Leave out GST; we add 18% for you.
- Other charges in rupees: documentation, stamp duty, valuation, and any insurance premium taken upfront. The KFS lists charges paid to the lender and those paid to third parties separately; add both.
Also copy the APR and the net disbursed amount from each KFS. They let you cross-check our result. To test one KFS in detail, use the loan APR and KFS checker.
How offers are ranked
For each offer we calculate the EMI, total interest and fees (with 18% GST on the processing fee). If all offers have the same amount and tenure, the one with the lowest total cost wins. If they differ, we rank by APR: the annual rate at which your EMIs exactly repay the amount you actually receive after fees.
Worked example: rate vs fee
₹10 lakh for 5 years. Offer A: 10.5% with a 2% fee. Offer B: 10.99% with no fee.
| Offer A | Offer B | |
|---|---|---|
| EMI | ₹21,494 | ₹21,737 |
| Fees incl. GST | ₹23,600 | ₹0 |
| Amount you receive | ₹9,76,400 | ₹10,00,000 |
| Total cost (interest + fees) | ₹3,13,232 | ₹3,04,255 |
| APR | 11.54% | 10.99% |
Offer B is cheaper overall even though its headline rate is higher.
Of Offer A's fees, ₹3,600 is GST alone. Notice too that A's EMI is lower, which is what a sales executive will point to. The EMI ignores the fee, which you pay on day one. The APR does not.
Why the fee matters more on a short loan
Take the same two offers but repay in 2 years instead of 5:
| Offer A over 2 years: total cost | ₹1,36,625 |
| Offer A over 2 years: APR | 12.9% |
| Offer B over 2 years: total cost | ₹1,18,477 |
| Offer B over 2 years: APR | 10.99% |
The fee is the same in rupees, but it is now spread over fewer months, so A's APR rises sharply. The same thing happens if you plan to foreclose early. If you expect to close a loan within a year or two, a zero-fee offer at a slightly higher rate is often the better deal.
Insurance bundling: the cost hidden in other charges
Lenders often attach a credit-life or loan-protection policy and take the premium upfront. Offer C has the lowest rate of the three, 10.25%, and a 1% fee, but ₹25,000 of insurance is deducted from the loan:
| Offer C with insurance: total cost | ₹3,19,021 |
| Offer C with insurance: APR | 11.89% |
| Offer C without insurance: total cost | ₹2,94,021 |
| Offer C without insurance: APR | 10.76% |
With the policy, the cheapest-looking offer can end up the most expensive. Ask in writing whether the insurance is optional. If it is, decline it or buy a term plan of your own. If you keep it, ask for the policy document and the free-look period, and note that a single-premium policy may not be refunded in full if you foreclose early.
Common mistakes when comparing offers
- Comparing a flat rate with a reducing rate. A flat 7% is far costlier than a reducing 7%. Convert with the flat vs reducing rate calculator.
- Comparing different tenures by EMI. A longer loan always has a lower EMI and a higher total cost.
- Missing the reset terms. Two floating offers at the same rate can drift apart if one has a higher spread over the benchmark.
- Ignoring foreclosure terms. Fixed-rate loans can carry a foreclosure charge; floating-rate loans to individuals for non-business use cannot.
- Accepting a verbal discount. If the lower rate or waived fee is not in the KFS, it does not exist.
Assumptions
- Reducing-balance interest at a fixed rate for each offer.
- All fees are paid upfront (or deducted from the disbursal).
- APR here is a nominal annual rate with monthly rests; lenders' KFS figures may use slightly different conventions.
- For a deeper look at fees on unsecured loans, read the true cost of a personal loan.
Frequently asked questions
What is APR on a loan?
The annual percentage rate (APR) is the yearly cost of the loan including fees and charges, not just interest. RBI requires banks and NBFCs to show the APR in the Key Facts Statement (KFS) for retail loans, so you can compare offers fairly.
Why can a lower interest rate be more expensive?
A loan with a slightly lower rate but a high processing fee can cost more overall than one with a slightly higher rate and no fee, especially on shorter tenures. The fee is paid once on day one, while the rate saving trickles in over the months.
What charges should I include?
Processing fee, documentation charges, stamp duty, and any insurance or add-on that is bundled into the loan. Leave out optional items you will not take. If a charge is cut from the amount credited to your account, it belongs here.
Is GST charged on the loan processing fee?
Yes. GST at 18% applies to the processing fee and most other service charges, such as documentation and foreclosure fees where they apply. It is not charged on the interest of a regular loan. This tool adds GST to the processing fee automatically.
Can a lender charge something that is not in the KFS?
Under RBI rules, a fee or charge not disclosed in the Key Facts Statement cannot be levied at any stage of the loan without your explicit consent. If you see one in your first statement, ask the lender to reverse it and raise a complaint if they refuse.
Should I accept the loan insurance my lender offers?
Cover that pays off the loan if you die is useful if your family depends on your income. But compare its cost with a plain term plan, which often covers more for less. If the policy is optional, you can decline it. Ask for the premium as a separate line.