A method of processing a video signal based on inter prediction includes constructing a first merge candidate list of a current block using a spatial merge candidate and temporal merge candidate of the current block, constructing a second merge candidate list by adding a history-based merge candidate indicating motion information of a block coded prior to the current block to the first merge candidate list, obtaining a merge index indicating a merge candidate applied to the current block within the second merge candidate list, and generating a prediction block of the current block using motion information of a merge candidate indicated by the merge index. The history-based merge candidate may be added to the first merge candidate list if the history-based merge candidate has motion information not overlapping motion information of a pre-defined merge candidate among merge candidates included in the first merge candidate list.