Impact of GST on Personal Loans: How Is GST Calculated on Loans?

Updated on: 11 July 2023

Published on: 29 May 2023

Taking a loan allows you to finance a range of expenses without any restrictions. Be it a holiday, a wedding, a medical emergency, or a home renovation, you can use funds from a personal loan hassle-free. Since this collateral-free loan comes with zero risk to your assets, it offers convenient and simplified financing. 

However, knowing the fees and charges associated with a personal loan is key to borrowing comfortably. The personal loan processing fee is one of the charges you should know about as are the charges related to GST on personal loans.

Read on to know more. 

What are Personal loan processing fees?

When you apply for a personal loan, the lender reviews your application and checks your eligibility. This requires an administrative procedure that comes at a cost. The personal loan processing fee you pay covers this cost.

This processing fee is computed on the total loan amount you are approved for and is deducted from the loan amount that the lender disburses to your bank account. Usually, personal loan processing fees vary from 0.50% to 5% of the loan amount. 

For instance, say you are approved for a personal loan of ₹50,000 and the processing fee is 5%. You will need to pay ₹2,500 as your processing fee. 

Knowing your lender’s processing fee is important, so you can account for it when you plan your loan and choose a lender with low processing charges. 

What is GST on personal loan?

With the introduction of the Goods and Services Tax in 2017, personal loan charges now have the applicable GST levied on them instead of the service tax that was applicable in the past. The rate of GST on loans is 18% and only applies to charges such as:

• Processing fees
• Prepayment charges 

The impact of GST on personal loan charges is very manageable as it replaces a 15% service tax that was applicable earlier. GST does not impact your loan EMIs or monthly payments. 

Here’s a calculation to help you understand this better. Assume that you are taking a loan of ₹50,000, as in the earlier example, and the processing fee is 5%. You will need to pay ₹2,500 as your processing fee. On ₹2,500, the GST of 18% comes to just ₹450. 

On Fibe, you not only get instant personal loans of up to ₹5 lacs but also pay nominal processing fees of up to 3%. Download our instant loan app or log in to our website to enjoy simple and easy access to funds. 

Frequently Asked Questions

How much does it cost to process a loan?

The personal loan processing fee varies based on the lender you choose and can go up to 5% of the loan amount. At Fibe, you pay up to 3% of your loan amount as the processing fee. 

Is the personal loan processing fee refundable?

Usually, the personal loan processing fee is not refundable as it covers the administrative costs of processing your loan application. It may be waived off or reduced for certain types of borrowers by some lenders. 

How are loan processing fees calculated?

The personal loan processing fee applies as a percentage of your loan amount. So, if you borrow ₹15,000 and the processing fee is 3%, the processing fee amount you pay is ₹450.

Do personal loans have hidden fees?

Reputed lenders are transparent about all personal loan fees and charges. Sometimes, you may come across hidden fees such as personal loan processing fees, EMI bounce charges, secure fees, penalty fees and prepayment fees. 

How can I reduce my processing fees?

In some cases, you can reduce your personal loan processing fees if you have a prior relationship with the lender or fall into a special category of applicants for whom the processing fees are reduced or waived. You can also apply for a loan from lenders who offer a personal loan with zero processing fees. Sometimes, you can also get seasonal offers where lenders waive the processing fees. 

Is it possible to get pre-approved for a zero processing fee personal loan?

Yes, sometimes lenders may offer a zero processing fee personal loan if you qualify for a pre-approved loan. However, in most cases, the processing fee is applicable even for a pre-approved personal loan. 

How long does it take to get approved for a zero processing fee personal loan?

The approval timeline for a personal loan depends on the lender and may vary from 5-10 minutes up to 1 week. 

How do I avoid paying processing fees?

By choosing a lender who doesn’t charge processing fees or by getting a season offer where the processing fees are waived you can avoid paying this fee.

Is the processing fee negotiable?

In some cases, you can negotiate with the lender to reduce the personal loan processing fees. 

How can I qualify for a zero processing fee personal loan?

To qualify for a personal loan without any processing fee, you will need to apply with a lender offering this waiver. To get approval for such a loan, meet all of the lender’s eligibility terms relating to age, income, place of residence and employment type. 

Is GST applicable on personal loans?

Yes, GST on personal loan processing fees applies at the rate of 18%. GST is also applicable to other personal loan charges such as prepayment. However, keep in mind that it does not apply to your personal loan EMIs. 

Is a personal loan taxable under GST?

Yes, a personal loan is taxable under the Goods and Services Tax since it is a service offered by lenders. However, the only times you will need to pay GST are on the personal loan processing fee and the prepayment fee. 

What is the impact of GST on personal loans?

The impact of GST on a personal loan is quite minimal. Earlier, a service tax of 15% was applicable on personal loan charges such as processing fees and prepayment fees. Now, 18% GST applies instead. So, if your loan amount is ₹15,000 and the processing fee is 3%, your processing fee is ₹450 and the GST is ₹81. 

Which loan is exempt from tax?

A home loan allows you to get tax deductions on both principal repayment and interest payment. However, this exemption only goes up to a specified limit. Other loans that also offer tax benefits on interest payments include education loans and personal loans used for education, home renovation, or business-related expenses. 

Is there tax on the loan amount?

No, there is no income tax you need to pay on the personal loan amount as it is not considered income.