Alert: Personal Loan Charges You Should Know About

Any charge imposed by the lender in addition to the principal amount and interest rates can be considered Personal Loan charges. While such loans can come in handy during financial emergencies, knowing about associated charges can help estimate the total cost of borrowing and plan repayments in advance. This blog explores the various charges attached to a Personal Loan and why you should be aware about them. Keep reading to find out more!

What are Personal Loan Charges?

Any charge imposed by the lender in addition to the principal money and rates of interest can be considered a Personal Loan charge. Such charges become reimbursements for services and administrative expenses related to processing, maintaining, and closing loans. Unlike interest rates, which are boldly advertised, these charges are often buried in fine print.

These charges affect the total loan cost. For instance, a loan with low interest rates but heavy processing fees would be costlier compared to one with slightly higher interest rates but less or no extra charges. This is an important matter that should be considered while comparing one loan offer to another.

Different Types of Personal Loan Charges

Personal Loan charges act as reimbursements for services and expenses related to processing, maintaining, and closing loans. Unlike interest rates, which are explicitly mentioned, these charges are often buried in fine print but can still affect your total loan cost. Here are some of the common charges associated with a Personal Loan:

Processing Fee

Often non-refundable, the processing fees are the largest upfront charge that range from 0.5% to 5%. This fee covers document verification, employment and income background checks, creditworthiness assessments, and other administrative procedures.

Also Read: Best Ways to Pay Off Personal Loan Faster and Save on Interest

Prepayment Charges

Some loan agreements come with prepayment charges, where you’re charged a fee if you pay off a large part of your loan early. Some lenders permit partial prepayments to a certain percentage free of charge, while others may impose charges for any prepayment occurring in the first year.

Further, the RBI has come out with a statement that after January 1, 2026, floating rate loans sanctioned or renewed from this date onwards shall not attract any prepayment charges, providing more flexibility for the borrowers.

Foreclosure Charges

Foreclosure charges apply when you completely close your loan before the scheduled tenure ends. Unlike the prepayment charges, foreclosure involves settling the entire outstanding amount at once. These charges typically range from 2% to 5% of the outstanding principal amount.

Late Payment Charges

Penalty charges are imposed for missed EMI payments, which are usually 1-3% of the overdue EMI amount. These charges increase your debt burden and depreciate your credit score. That’s why having your payments set on auto-debit or simply keeping a balance to prevent insufficient funds in your bank account helps avoid these loan charges.

Also Read: Get the Freedom to Follow Your Dreams with A Personal Loan!

Stamp Duty & Other Statutory Charges

Loan agreements require stamp-duty payment as per state government rates and are dependent on the amount of the loan. Some states charge a fixed amount, while others take a percentage of the loan amount.

Statutory charges can include notarisation fees and other levies imposed by the government. One cannot alter these charges, as they are fixed by respective state governments and are necessary for the legal validation of your loan agreements.

Bounce Charges

Bounce charges are penalties levied by banks for missed payments of scheduled equated monthly instalments (EMIs). The charges are a penalty on a lack of repayment and are meant to cover the extra work and costs undertaken by lenders when payments are delayed.

Loan Cancellation Charges

Some lenders levy a loan cancellation fee, applicable after a loan application has been approved but before disbursement. It ranges from 2% to 5% of the loan amount, depending on the progress of the process.

Legal and Recovery Charges

These charges come into the picture if you default on your loan. Lenders may impose legal notice charges, recovery agent fees, and other charges for the collection of funds. This can vary depending on the stage of recovery and the amount of recovery involved.

Also Read: Personal Loan for Contract Employees With Salary Slip

Importance of Knowing Personal Loan Charges

Lenders are required to disclose all the charges before loan approval, but sometimes borrowers tend to rush through the documentation process without paying attention to the details. Here’s why awareness is ideal:

• Being transparent with the policies is mandated by the Reserve Bank of India (RBI), and any lender doing otherwise is liable to be punished.
• These hidden costs could have you paying thousands extra on your loan amount; they influence your EMI calculations and entire repayment capability.
• Knowing charges in advance avoids disagreements with lenders in the future and leaves you assured of the optimum offer available in the market.
• Being informed about these charges makes your negotiating stance stronger.
• Most fees, especially processing fees, can be negotiated away or waived for customers with good credit histories or established relationships with the lender.

To Conclude

While a Personal Loan can be used as an emergency fund, it’s good to be able to identify and understand the myriad of fees associated with them to avoid unforeseen costs. By familiarising yourself with these charges, you’ll make an informed decision, keep the loan under control, and possibly cut some costs. Do not shy away from negotiations or hesitate to compare with other offers to find the one that suits your financial situation.

If you’re looking for a reliable and transparent Personal Loan option with competitive interest rates and clear terms, you can trust Poonawalla Fincorp to support your financial journey with ease. Apply now to avail without any hidden charges.

Frequently Asked Questions

What happens if my EMI bounces due to insufficient funds?

In case the EMI bounces due to insufficiency of funds, the lender will charge you a bounce fee plus any fees levied by your bank. The missed payment can also adversely impact your credit score.

Can lenders add new charges after loan approval?

Lenders cannot add additional charges after loan approval. Under RBI guidelines, all charges should be communicated before signing the agreement. Additional charges for services may only be levied if said services are clearly stated in your loan agreement.

Are there charges for switching from fixed to floating interest rates?

Yes, there are charges for switching from fixed to floating interest rates. This fee is charged for processing the change in your loan’s interest rate structure. It usually ranges from 0.5% to 1% of the outstanding loan amount.

How do late payment charges affect my credit score?

Late payment charges happen as a result of missing EMI payments or delaying payments, which lower your credit score. This makes it harder to access loans in the future.

Can I negotiate the processing fee for a Personal Loan?

Yes, depending on your credit history or relationship with the lender, you may be able to negotiate the processing fee. Lenders are often willing to reduce or waive this fee for customers with a good credit history.

What is the processing fee for Personal Loans?

Processing fees for a Personal Loan typically range from 0.5% to 5% of the loan amount. This fee is usually non-refundable and covers the costs of document verification, creditworthiness assessment, and other administrative processes.