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March 31, 2020
If you’re undertaking a loan, you may have heard of additional costs associated with it. These charges include interest rate, processing fee, an origination fee, fees for EMI’s and more charges as such. If you bounce on a payment, then you may be required to pay high fees. Hence, before taking a loan you must be aware of the additional fees and charges applicable on your personal loan.
A personal loan is one of the easiest ways to take credit and meet your expenses, fund your requirements and more. You must be aware of the interest you will be paying on this loan and the total amount you will be paying while the repayment period of your loan. But interest is not the only charge you end up paying. This is why you must keep a check on the payments to keep the repayment process smooth and confusion-free.
It is important to do so because at times other charges may be more than you assume. By determining the affordability of the same, you must decide on which personal loan suits you, depending on the lender.
Fees and charges on your personal loan
As mentioned above, there are multiple kinds of charges and fees levied on your loan. Below are the fees and charges related to your personal loan.
1 - Processing Fee
The processing fee is a charge which is levied on the loan borrower by the bank or other financial institutions at the time of loan processing. It is charged to cover the processing costs for your loan such as approval of your application and this cost usually differs for each lender. The borrowers who apply for a personal loan can pay the processing fee in two ways - First, paying the fee right away or Second, After disbursal of the loan, having the fee deducted from your real loan amount. The processing fee is usually very small and ranges between 0.50% to 3% of the loan amount.
2 - Interest Rate
Interest Rate in simple words is the cost of borrowing money. It is an annual rate which is calculated and levied on the principal loan amount by your lender. This forms a part of the EMI’s borrower pays every month. Basically in the repayment period, you repay the loan with some interest.
Once the interest rate is fixed on your loan, it usually doesn’t change unless it’s a variable interest rate.
3 - Verification Charges
These charges are levied only to test the repayment capacity of the borrower. A third-party verify the information and credentials of the borrower. They tend to check the credit history of the borrower and the repayment capacity as well. This process requires a fee known as a verification charge and is an additional cost.
4 - EMI Bounce or Penalty Charge
If you miss an EMI payment on your loan, you will be required to pay a penalty fee. When you choose a loan, and the repayment period starts, you will be making the repayments in the form of monthly instalments or EMIs. You must pay the monthly dues on time otherwise you will be defaulting on your loan payment. This would lead to a penalty, thus charging you extra money.
To avoid this, you should calculate your EMI’s beforehand and plan the repayment accordingly.
5 - Goods and Services Tax
A borrower may be required to pay Goods and Service Tax (GST) for any additional service that they may require during the repayment period or during the sanction of the loan.
6 - Penal Interest Rate
This interest is charged on late payments i.e. when you default on your loan or miss your EMI payments. It is charged monthly at 2% or more.
7 - Convenience Fee
A convenience fee is charged when a borrower needs online access for their loan account. A unique ID and password are given to the borrowers through which they can access the loan information easily.
8 - Foreclosure Charge
Foreclosure of a loan means paying the entire loan amount before the repayment period ends. Paying off the entire loan may cause a certain loss for the bank. For this, the lender may charge you with a prepayment penalty. If you’ve already made 1 month EMI payment, you may be required to pay nominal charges along with additional taxes on your principal amount. The prepayment penalty varies for each lender and can be between 2%-4%.
9 - Part-Prepayment Penalty
In case you wish you pay only a part of your loan amount in one go, even then you would be required to pay part-prepayment charges. If you’ve already paid 1 month’s EMI, you are still required to pay a fee of 2% (may vary for each lender) along with applicable taxes. Your prepayment amount must be greater than one month’s EMI. Some lenders don’t charge for prepayment if you’ve opted for a flexible loan, depending on the lender.
10 - Duplicate Statement Fees
The bank may charge some fee for providing you with a duplicate statement of fees, letters, certificates, payments and more. It includes the payment schedule and the remaining balance of the loan. You can download these statements online or can pay some fee to get their physical copy. The charges may range from Rs. 200 to Rs.500.