Personal loans carry extra charges in addition to the interest rate due to their unsecured nature. Being informed about these fees in advance allows you to incorporate the total loan cost into your considerations and prevents surprises later on.
Typical costs and fees associated with personal loans
Some of the prevalent charges and fees associated with personal loans comprise
- Processing fee: This fee, charged once by the lender, is for handling your loan application. Usually falling between 0.5% and 2.5% of the loan amount, the processing fee encompasses expenses related to verifying your information, underwriting the loan, and preparing the necessary loan documents.
- Origination fee: This fee, charged once, is imposed by certain lenders for originating the loan. It typically takes the form of a flat fee, irrespective of the loan amount.
- Prepayment penalty: A fee may be levied by some lenders if you settle your loan ahead of schedule. This penalty usually constitutes a percentage of the remaining loan balance.
- Late payment fee: If you fail to make a loan payment on time, the lender imposes a fee. Typically, this late payment fee consists of a flat amount along with an additional penalty interest rate applied to the overdue sum.
- Application fee: Certain lenders impose a fee for the mere act of applying for a personal loan. Typically non-refundable, this fee remains applicable even if your loan application is not approved.
- Credit check fee: As part of the loan application process, some lenders may assess a fee for conducting a credit check on you.
Why check fees before applying for personal loans?
It’s crucial to explore various options and compare fees offered by different lenders before securing a personal loan. Checking the fees before applying for a personal loan is essential for the following reasons:
- To determine the comprehensive loan cost
- To budget strategically
- To effectively compare loan offers
- To steer clear of unanticipated charges
- To make a knowledgeable decision
Securing a personal loan involves various fees and charges, such as processing fees, verification charges, GST on additional services, late payment penalties, and loan prepayment penalties. The precise amounts and terms differ among lenders. Prior to availing a personal loan, borrowers should comprehend these fees and charges, empowering them to make informed financial decisions and ensure prompt repayment.
Frequently Asked Questions (FAQs)
Q. Why do some lenders charge verification charges?
Before lending, lenders are obligated to confirm that borrowers can repay loans. They frequently enlist agencies to authenticate borrowers’ credentials, scrutinising factors such as credit scores and repayment history. The associated cost of this verification process is referred to as the verification charge, which applicants are required to cover as an additional expense for the bank.
Q. Do lenders charge penalties for foreclosure of personal loans?
Loan foreclosure entails settling the loan amount before the agreed-upon tenure. Early repayment of the debt may result in some losses for the bank. To offset this potential loss, the bank might enforce a prepayment penalty, typically ranging from 2% to 4%, with variations depending on the specific bank.
Q. Do lenders charge fees for issuing duplicate statements?
Banks might charge a fee for issuing a duplicate statement that outlines the payment schedule and outstanding balance of a loan. This fee typically ranges from ₹200 to ₹500. Moreover, the charges may vary from one lender to another.
Q. Is foreclosure allowed in personal loans?
Certain banks enforce a lock-in period ranging from 6 months to a year, whereas others permit pre-closure even after the first EMI has been debited. Some banks may impose restrictions, specifying that only your funds can be used for pre-closure, excluding balance transfer cheques from other banks. Additionally, banks might offer pre-closure at no cost or impose a pre-closure fee (ranging from 2-5% of the amount being closed). It is advisable to seek clarifications from a loan advisor or the banks regarding these factors before signing the loan document.
Q. What are the documents needed while applying for a personal loan?
To initiate the loan application process, individuals are required to submit identity proof, residence proof, the latest three months’ salary slips, the preceding six months’ bank statements, and a passport-sized photograph. Additional documents, such as Form 16, an appointment letter, a company ID card, and the relieving letter from the previous employer, may be requested by banks at a later stage.
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Published: 11 Mar 2024, 04:47 PM IST