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Know Hidden Charges in Personal Loans
- Updated on: 3 Oct 2024
- Published on: 18 Oct 2020
When applying for any financial products, having complete information about it is necessary. This helps manage your repayment better and protects you from unexpected financial surprises in the future.
This is especially crucial when you borrow funds from a lender, such as a personal loan. A loan involves many fees, some of which are to be paid before disbursal. Most trustworthy lenders don’t hide these charges, which gives you a complete picture.
Here’s a list of charges you must know when applying for a personal loan.
Check out some of the most common charges most financial institutions charge you when you opt for a loan:
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
It’s best to communicate with your lender and clear any doubt about the fee structure to avoid confusion.
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.
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.
Here are some tips to make your loan more budget-friendly to ease the repayment process.
Opting for credit at competitive interest rates is important to ensure your loan is affordable. If the interest rates of a personal loan are higher, the borrowing cost will also be higher.
Another essential point is checking for hidden charges in a personal loan. Many lenders do not mention the charges clearly, and if you don’t check them before finalising a loan, it can lead to unforeseen financial liabilities.
You must also choose the loan tenure carefully to ensure the loan matches your financial standing. If you choose a longer tenure, the total loan amount will be divided into smaller budget-friendly EMIs and vice versa.
One of India’s largest instant personal loan platforms, Fibe ensures you pay only what you see. Here are some benefits of a personal loan from Fibe:
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 and enjoy zero hidden charges and affordable interest rates.
Download the Personal Loan App here or simply log in to our website to get funds hassle-free.
Here are some common charges apart from the personal loan interest rate:
The hidden charges are fees you need to pay during processing or repayment that you may be unaware of. If not planned for in advance, such charges can be a surprise and strain your finances. They include:
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.
The types of charges levied on a loan include:
Usually, personal loans are not interest-free as the interest is the cost of borrowing credit. However, lenders may offer interest-free loans but charge other types of fees, such as application costs, processing charges and more. Watch out for personal loan scams that advertise no interest but charge absurdly high fees if you do not repay on time.
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.
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.
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.
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 zero foreclosure charges.
