Charges Associated with Personal Loans Before and After Application

When we apply for any kind of loan, we often forget to read the fine print of the loan documents and guidelines. You will notice that there are many costs associated with your Personal Loan apart from the rate of interest. The actual cost of your Personal Loan will be realised by you only after many charges are levied on it. If you tend to compare different loans before arriving at the real cost of the loan, you will see processing fees and other charges involved.

Here is a list of charges associated with Personal Loans before you apply:

  • Application/Processing Fee: Application or Processing fee is the money charged by banks for processing your loan application. A processing fee of every bank may vary. Most banks require you to pay this fee before they sanction your loan to cover their loan processing cost. This fee is paid when you submit your loan application along with your Personal Loan documents. In some banks, the processing fee is based on the amount of loan you apply for. Usually, it is 1 or 2% of the loan amount. The application fee is usually non-refundable, but if you take it in writing from your bank, the fee may be paid back to you if your loan is not processed (depending on the policy of the concerned bank).
  • Documentation fee: Just like the application fee, banks charge documentation fee for the verification of the Personal Loan documents provided by you. Almost all banks hire a third-party vendor to do verification of your documents. You will generally have to spend Rs. 500 to Rs. 1,000 as documentation fee for your loan.

Here is a list of charges levied by banks after your loan application is approved:

  • Interest Rate: Each bank and each Personal Loan scheme has its own interest rate. Interest rates for Personal Loan usually vary from 10.99% to 22%. As soon as you start paying EMIs for your loan, you are bound to pay the agreed interest rate. An EMI itself constitutes the principal loan amount plus interest charged. This is the highest fee/charge levied on your Personal Loan by the lender, hence, make sure you negotiate to get the best available interest rate deal.
  • Personal Loan Insurance: Many banks provide you Personal Loans with credit insurance. This insurance is offered to secure your Personal Loan repayment. If for some reason you are unable to repay your debt (such as accident, job loss and so on), the insurance will help you with the repayment of outstanding loan amount. The insurance premium is usually added to your EMIs. Though this facility is recommended, it is not mandatory. Make sure you analyse your monthly budget before opting for this facility.
  • Late Payment Charges: If you delay your loan EMI, your bank will levy late payment charges for the delay. These charges are fixed at the time of signing the loan agreement with your bank, hence make sure you are aware of such charges when you Apply for HDFC Personal Loan or other Personal Loans. The late payment charges usually range between 2-3% of the EMI/ per default
  • Bounced Cheque Charges: When a cheque for EMI is bounced, you have to pay charges for it. Before making EMI payment through cheque,  make sure that there is sufficient money in your bank account so that your cheque isn’t bounced. For a single bounced cheque, banks may charge up to Rs. 1,000 as a penalty (depending on their policy).
  • Part Prepayment and Foreclosure Charges: A bank may charge a fee for closing your Personal Loan account in part or full. These charges may be up to 4% of your outstanding loan amount (vary from lender to lender).

Charges on Personal Loans can vary from bank to bank. However, above-mentioned are some common fees and charges associated with all Personal Loan schemes by every lender. It is advised to calculate the total cost of your Personal Loan after analyzing all the charges mentioned above and then decide which offer you should avail.

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