Personal Loan Hidden Fees and How to Avoid Them

When applying for a personal loan, one of the biggest concerns borrowers have is understanding all the costs involved. What is the processing fee for personal loan? Are there any personal loan hidden charges that might surprise you later? Getting clarity on these questions helps you plan your finances better and repay without stress. Being aware of the different personal loan charges upfront also protects you from unexpected expenses. Most trusted lenders remain transparent about these costs, so you know exactly what to expect before disbursal. 

In this blog, we’ve explained the key charges you must know before applying for a personal loan. 

Hidden Charges in Personal Loan Process 

Check out some of the most common charges most financial institutions charge you when you opt for a loan: 

• Processing Fees: This is either charged upfront or deducted from the disbursed loan amount. This fee is generally non-refundable, ranging between 0.5% and 5% of the loan amount.  

• Cancellation Charges: Today, this has become a feature of every kind of service you avail of, be it flights and train bookings or availing a instant personal loan. The charges vary from one institution to another. They can start at flat ₹1,000 to around ₹ 3,000 with an additional 18% GST.  

• Prepayment Penalties: Remember, as a customer, personal loans repayment includes interest. If you have the funds available, you can close the loan before the tenure ends and save on interest. For this, lenders charge penalties of 2-5% of the outstanding loan amount. Why do prepayment penalties exist? According to financial institutions, they lose out on the interest they would otherwise get with regular EMIs.  

• Late Payment Charges: You must pay late payment charges as a penalty if you do not pay your EMIs by the due date. The late payment fees may go up to 1-2% of the EMI amount.  

Also Read: What Happens If Personal Loan EMI Is Missed.  

• Effective Interest Rates: The effective interest rates on personal loans range between 10.99% and 44% p.a. The upper limit may also go higher in the case of non-salaried individuals. Furthermore, other factors like credit score, relationship with the bank and financial stability help in determining the applicable interest rate.  

• Repayment Mode Swapping Charges: If the mode of repayment is suddenly switched, say from paying via cheque to auto-debit, you will be charged for this, too. Lenders usually charge around ₹500 + 18% GST as the swapping charge during the loan tenure.  

• Duplicate Documentation Charges: The financial institution charges an extra fee for reissuing loan-related documents. These can include statements, NOCs, credit reports, etc. This charge is somewhere between ₹200 to ₹500 (plus 18% GST) for duplication.  

• Other Charges: There could be various applicable charges depending on the lender. This may be based on the type of lender, the customer’s repayment behaviour, the loan sanctioned, or even the place from where it is sanctioned. You may even need to pay stamp duty and other legal charges.  

• GST: Earlier, the service tax and VAT were applied to loan-related services. Now, it’s the Goods & Services Tax (GST). This is barely ever mentioned in the loan documentation process but suddenly arises during the payment.  

The amount in India is relatively high, as the standard is 18% on any loan processing service. This means that for every ₹100 you are told about, an additional ₹18 is added as GST.  

Ways to Find Out Hidden Charges in A Personal Loan? 

The RBI mandates that all lenders need to outline all charges applicable to the loan in the Key Fact Statement. This not only helps increase transparency, but also eliminates the chances of you getting surprised by hidden charges.  

The following are some ways you can find all the fees and charges for your loan.  

• Ask Your Lender Directly: It’s best to communicate with your lender and clear any doubt about the fee structure to avoid confusion.  

• Read the Loan Document Carefully: Once you have applied for the loan, the lender will send a document detailing all your loan details, including the fees and charges. Reading this document carefully will give you all the information on various charges.  

• Visit the Website: If you want to know the estimated cost of borrowing, simply visit the lender’s website and check the rates. In case the fee structure is not mentioned on the website, this may be a red flag.  

Remember, before you avail of your personal loan, check all information and research from several sources. This will help you make an informed decision and select a suitable offer.  

You can get a Fibe Instant Cash Loan of up to ₹5 lakhs and enjoy a 100% digital application with 0 prepayment charges. Download the Personal Loan App here or simply log in to our website to get funds hassle-free.  

FAQs on Personal Loan Hidden Charges 

What are the additional charges on a personal loan?  

Here are some common charges apart from the personal loan interest rate: 

• Processing fee  

• Preclosure charges 

• Late payment fees 

• Repayment mode swapping fees 

• Duplicate documentation charges 
   

Can I prepay my personal loan without any extra charges?  

Yes, you can prepay your loan without any additional charges by choosing digital lenders like Fibe. There are no prepayment charges, making it easy for you to become debt-free sooner.  

What are loan placement fees?  

These fees are generally taken by brokers who take care of financial transactions. It can be calculated as a percentage of the total value of the transaction. In simple words, loan placement fees are just a brokerage fee to complete the application on behalf of a client.  

How much is the processing fee for a personal loan?  

Lenders in India usually charge up to 5% of the outstanding loan amount. At Fibe, the fee starts from just 2% of the loan amount.  

How can I reduce my processing fees?  

Since the processing fee can amount to a significant sum, lenders may sometimes waive it. This may apply to women borrowers, creditworthy borrowers, or existing customers.  

What are foreclosure charges for a personal loan?  

Personal loan foreclosure charges refer to the fees lenders levy when you pay more than the EMI amount. The charges vary for part-prepayment and full prepayment or foreclosure. At Fibe, you can prepay your loan freely, as there are 0 foreclosure charges.