Flat Interest Rate
Interest is calculated on the original principal for the entire tenure. It never decreases. A 10% flat rate on ₹1 Lakh for 3 years means you pay ₹10,000 interest every year, even though you are repaying the loan monthly. Avoid this!
Reducing Balance Rate
Interest is calculated only on the outstanding balance. As you pay EMIs, the principal reduces, and so does the interest. This is the standard, fair method used by banks.
Part-Payment
Paying a lump sum (e.g., ₹50,000) to reduce your outstanding principal. Unlike Home Loans, Personal Loans often have a "Lock-in Period" (e.g., 6-12 months) before you can part-pay.
Foreclosure Charges
A penalty for closing the loan early. It is usually 2-5% of the outstanding principal + 18% GST. Always calculate if the interest saving is greater than this penalty before closing.
Cooling-off Period
A recently introduced concept (by RBI guidelines) where borrowers can cancel a digital loan within a few days (e.g., 3 days) without penalty, paying only proportionate interest.
Debt-to-Income Ratio (DTI)
The percentage of your monthly income that goes into EMIs. For Personal Loans, banks prefer a DTI < 40-50%.