What are the Processing Fees and Other Charges on Personal Loans?

A personal loan is a convenient tool to meet all your immediate financial needs.

Are you planning a luxurious holiday or a makeover for your house? Maybe you want to pay your credit card bills or cover unexpected medical expenses. A personal loan is a convenient tool to meet all your immediate financial needs. The bank levies certain fees and charges for this loan. And understanding them is important for making an informed decision when applying for a personal loan.

Processing fee

The bank may apply certain non-refundable, one-time charges to process your personal loan application. This is known as the processing fee, as the amount charged covers the bank's administrative efforts to assess your application, verify your documents, and the loan.

The processing fee is usually a percentage of the loan amount. It may also depend on the lender's policy, your credit score, and the tenure of the loan. The processing fee may include the stamp duty fee as per the state's Stamp Act.

In India, personal loan processing fees may vary from 0.5% to 5.5% of the loan amount. It may vary from state to state, even for the same bank, due to state regulations.

Additional charges your bank may apply

Here are some other charges that banks may levy on personal loans:

GST

Goods and Services Tax (GST) is a tax levied on most goods and services, including financial services. For personal loans, it is 18% of the processing fee. GST does not apply to the loan amount, the repayment or interest payment.

Interest rate

Getting access to instant liquidity has some associated costs in the form of interest payment. The interest you pay is the cost of taking a personal loan. It is a percentage of the personal loan amount. The interest rate may range between 10% and 26%, depending on the bank’s policies and your creditworthiness.

Part prepayment charges

Prepayment charges are applied if you repay a part of the loan amount before the due date. Such charges are applicable if you have taken a loan with a fixed interest rate. So, personal loans with floating interest rates do not have prepayment charges.

Foreclosure charges

Foreclosure fees are the charges applied when you pay off the complete personal loan and the interest before the tenure of the loan. Some banks may not allow you to close the loan before the pre-determined EMIs. Also, the Reserve Bank of India (RBI) does not allow foreclosure charges on personal loans with floating interest rates. The foreclosure fee depends on the amount paid, the percentage of tenure left, and the outstanding principal.

Loan cancellation charges

Loan cancellation charges are applied when you decide not to take the loan after the bank has sanctioned the loan or disbursed the amount in your account. These are usually one-time charges.

Cheque dishonour charges/bounce charges

You have the choice of making your EMI payments via cheques or auto-deduct mode. In case your cheque bounces or the auto deduction fails due to a low balance in your account, some charges may apply. These are charged per instance and may also have a negative impact on your credit score. On repeated instances of failure to pay the EMI, the bank may raise the charges.

Late payment fees

Late payment is charged per instance when you fail to make monthly EMI payments. It is a good idea to set auto-deductions to ensure that your EMIs are always paid on time. For instance, the Kotak811 Mobile Banking App allows you to set instructions to make the payments on time. Such apps may also send you an alert before the payment due date, so you can ensure that enough balance is there in your account.

Duplicate statement

This is the fee to get a duplicate statement of your payment schedule and outstanding amount. This is a fixed fee each time you request a duplicate statement. Having a personal loan app eliminates the need to request duplicate statements, as all your details are available at your fingertips.

Fees and charges are not the only considerations

Personal loans are a boon for meeting your immediate financial requirements. Remember to check all the fees and charges before deciding. While these are important, don’t make the decision based only on them. There are other considerations, like speed of loan disbursal and availability of customer service. Also do read the terms and conditions carefully.

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