An interest rate is often everyone's first consideration when looking for a personal loan. However, it is not the only factor you should pay close attention to; there are various charges, such as processing fees, GST, foreclosure charges, and more, that you must consider before applying for a personal loan.
Knowing these personal loan charges will help you manage your finances and avoid any financial surprises that may arise. Hence, it is crucial to determine the overall cost of your loan. Read on to understand these 10 personal loan charges that will help you make an informed decision and not sway away with just lucrative interest rates.
Loan charges can vary depending on the lender, so it's important to understand them before submitting your application.
A processing fee is a small charge levied by the lenders to process your loan application and is usually part of administration costs. You can choose to either pay personal loan processing fees upfront or opt to deduct the fee directly from the disbursed loan amount.
Personal loan processing fees may vary from lender to lender and range from 0.5% to 2.50% of the total loan amount.
Before approving a loan, lenders and banks typically perform a verification process to assess the applicant's ability to repay. In most cases, a third-party organisation helps to evaluate your credit score and repayment history.
Since this verification process incurs an additional expense for the lender, the borrower bears this additional cost.
If you require additional services during your loan sanction or repayment period, the lender may charge you a small fee of 18% against it in the form of Goods and Service Tax (GST).
So remember to double-check with your lender about any applicable GST charges before availing a personal loan.
Duplicate document charges are fees that lenders impose if you request duplicate copies of the account statements, repayment schedule, NOCs, and other paperwork related to your loan.
These duplicate document charges can range from ₹200 to ₹500 per document, varying from each lender. To avoid these charges, ensure you keep all your loan documents safe and organised.
Prepayment charges are applicable if you decide to pay off a part of your loan before the end of its term. Some lenders impose prepayment penalties, while others may allow prepayment without any charges.
The prepayment fee can range from 2% to 5% of the outstanding loan amount. So, it's important to check your loan prepayment policy.
Much like prepayment penalties, foreclosure charges apply if you close your loan account entirely before the stipulated tenure ends. The lender bears the charges if you close a loan before the set tenure.
To compensate for this loss, lenders may charge you a small fee ranging between 2% and 4% of the principal outstanding. So, clarify the cost with your lender before signing the loan agreement.
You only have to pay late payment charges if you fail to pay your EMI on time. Late payment charges can range from 2% to 3% of the overdue amount and may vary depending on your lender's late payment policy.
Additionally, late payments can negatively impact your credit score, making it difficult to obtain a loan in the future. You should keep in mind making timely payments to avoid such penalties.
Lenders can charge a cancellation fee if you cancel your loan application after the loan disbursal or after the cooling-off period. The loan cancellation fee may vary depending on your lender's terms.
Additionally, some lenders may have specific policies or additional fees related to early cancellation, which could impact the total cost. Before deciding, it's always a good idea to communicate directly with your lender to understand all potential charges and implications associated with your personal loan.
Repayment mode swapping charges are fees imposed when you change your loan repayment method, such as from ECS (Electronic Clearing Service) to PDC (Post-Dated Cheques).
Repayment mode swap charges are usually ₹200 to ₹500. Each lender may have specific policies and fees for switching between these modes. You should check the fine print carefully before signing.
Lenders may impose additional charges depending on your repayment behaviour, the type of lender you choose, or even the type of loan sanctioned to you. These charges can also include stamp duties and other legal charges.
While these are generally small amounts, they can add up over time. So, before applying for a personal loan, it's essential to review all terms and conditions thoroughly to understand potential fees.
Knowing before applying can be your best ally regarding personal loans. Even seemingly small fees can accumulate over time and impact the total loan expense. Therefore, it’s best to have a thorough and transparent discussion with your loan provider. It will help you build a better rapport and save you from any future hassles or challenges.
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