Know Hidden Charges in Personal Loans

  • Updated on: 31 Jan 2024
  • Published on: 18 Oct 2020
Know Hidden Charges in Personal Loans

Being aware of the personal loan hidden charges before applying for credit is important. This not only helps manage your repayment better but also protects you from unexpected financial surprises in the future. 

Here’s a list of charges you must be aware of when applying for a personal loan.

Hidden Costs of Personal Loans

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 and is not minimal, ranging somewhere between 2% and 3% of the application 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 personal loan. The charges vary from one institution to another. They can start somewhere at flat ₹1,000 to around ₹ 3,000 with an additional 18% GST.

  • Prepayment Penalties

Remember, as a customer, personal loans could be a trap. Anything more than the EMI amount may get you penalties of 2-5% of the outstanding loan amount. Why do prepayment penalties exist? According to financial institutions, they lose out on the interest rate they would get if the repayment is made as per schedule.

  • Late Payment Charges

This is a no-brainer. You need to pay late payment charges as a penalty if you default on your payments or get late with repaying your EMIs. Perhaps ironically, you can neither repay your loan amount before time nor do that after time. 

The late payment fees may go up to 2-3% of the EMI amount. This means you may end up paying more interest on your late fees than your actual loan!

  • Effective Interest Rates

The effective interest rates on personal loans range anywhere between 10.99% and 24% p.a. The upper limit may go higher in the case of non-salaried individuals, too. 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 swapped, 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 would charge an extra fee for reissuing loan-related documents. These can include statements, NOCs, credit reports, etc. It is generally charged somewhere between ₹50 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 type of loan sanctioned, or even the place from where it is sanctioned. They can also charge for stamp duties 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 in the form of GST.

How To Ensure Your Personal Loan is Easily Affordable

Here are some tips that can help you ensure that your loan matches your affordability:

  • Choose a Loan with Lower Rates

Opting for credit at lower interest rates is important to make sure that your loan is affordable. If the interest rates of a personal loan are higher, the borrowing cost will also be higher.

  • Check for Hidden Charges

Another essential point is checking for hidden charges in a personal loan. Many banks do not mention the fees and charges clearly and if you don’t check them before finalising a loan option, it can lead to unforeseen financial liabilities.

  • Opt for a Suitable Tenure

You must also choose the loan tenure carefully to make sure that 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. 

Fibe to Your Rescue

India’s largest instant personal loan platform, Fibe, ensures that money isn’t diverted on some pretext or the other. Especially on hidden charges, you pay only what you see. Here are some benefits of a personal loan from Fibe:

  • Get a loan amount of up to ₹5 lakhs
  • Attractive interest rates
  • Processing fees starting from 2%
  • Prepayment charges are NIL

Remember, before you avail of your personal loan, ask for all information and research from several sources. This will help you in making an informed decision and selecting a suitable offer. You can get an Instant Cash Loan from Fibe and enjoy no hidden charges along with affordable interest rates. 

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?

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

  • Processing fee for a personal loan
  • Personal loan preclosure charges
  • Late payment fees
  • Repayment mode swapping fees
  • Duplicate documentation charges

What are the hidden costs of a personal loan?

Personal loan hidden charges are fees that you need to pay during processing or repayment that you are not aware of. If not planned for in advance, such charges can be a surprise and strain your finances. They include:

  • Foreclosure charges
  • Late payment fees
  • Processing fees

Can I prepay my personal loan without any extra charges?

Yes, you can prepay your personal loan without any additional charges by choosing digital lenders like Fibe — one of India’s leading consumer lending platforms. There are no prepayment charges levied by Fibe, which makes it easy for you to become debt-free sooner.

What are the types of charges in a loan?

The types of charges levied on a loan include: 

  • Charges for processing and verification of your loan application
  • Penalties for missing EMIs
  • Charges for duplicate documents
  • GST
  • Fees for prepaying your loan

Can personal loans be interest-free?

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.

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 sanctioned 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 personal loan freely, as there are zero foreclosure charges.


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