A personal loan is the money borrowed by an individual for his/her personal need. There may be many circumstances when you may need personal loan like medical emergency, marriage expanses, home repairs, vacation costs or any other unexpected situation. These loans are different from other type of loans such as education loan, home loan, vehicle loan, etc. which serve a specific purpose. Borrowing personal loan becomes inevitable in some situations. But the cost of borrowing personal loan is more as compared to other loans. There are some fee and penalty that are levied on the personal loans. The borrower should know what are the charges levied on the personal loans. This post provides information about seven such loan charges.
Loan Processing Charge
During the procession of your loan some administrative charges are incurred by the bank which are charged from the borrower. It is a very small percentage and usually ranges from 0.5% to 2.5% of overall loan amount and in some cases it may even go up to 4% of the overall loan amount. The loan procession charges very from bank to bank and generally a minimum and maximum percentage for such charges is fixed by each bank.
| Name of Lender | Procession Charges (% of Loan Amount) |
| State Bank of India | Up to 1.5%(Maximum Rs. 15,000/-) |
| Tata Capital | Up to 2.75% |
| Bajaj Finserv | Up to 4% |
| IDFC First Bank | Up to 3.5% |
| ICICI Bank | Up to 2.5% |
| Induslnd Bank | Up to 3% |
| Axis Bank | 1.5% to 2% |
| HDFC Bank | Up to Rs. 4,999/- |
| Kotak Mahindra Bank | Up to 3% |
Verification Charge
Before approving loan, the bank makes sure whether the borrower will be able to repay the loan. The bank therefore verifies the credentials of the borrower with the help of some third party. The third party checks your credit history and other details for which they charge some verification fee from the bank. The cost incurred in the verification must be covered by the borrower and it is called the verification charges.
Penalty on EMI Default
Banks fix EMIs for repayment of loans. If you miss the EMI, they charge the borrower some penalty. Therefore, you should be careful regarding the EMIs and get them fixed as per your repayment capacity.
Duplicate Statement Fee
If you need a duplicate statement of your payment schedule, then the bank may charge you some nominal fee in the form of duplicate statement fee.
GST
The bank may charge GST if they provide your any additional services during the loan approval or repayment period. The GST usually is charged as 18% of the cost of service provided.
Penalty for Prepayment or Foreclosure
Sometimes, if you want to pay the loan amount before the scheduled period or foreclose the loan before the stipulated period then the banks may import penalty on the borrower as a compensation of their loss, however the RBI has imposed ban on lenders to levy pre- payment fee on personal loans lent on floating interest rates. This penalty is normally 2 to 4 percent of the loan amount. Therefore, you must carefully enquire if there is any such penalty on your loan!
Loan Cancellation Charges
Sometimes the borrower might wish to cancel the loan after it has been sanctioned or disbursed. In such cases a loan cancellation fee has to be paid by the applicant which varies from bank to bank. Loan cancellation fee is usually charged as Rs.1000/- per event.
Conclusion
If there is an emergency situation or you have to incur some unavoidable expanses, then borrowing personal loan is justified. But if you depend on the personal loans to pay for your vacations or some luxury spending, then taking personal loan may be harmful for your financial health. Not only you will impose an unnecessary burden of loan on yourself but it is costlier also as compared to other type of loans. You may even have to pay penalty for late EMI payments and for prepayment of loan also. You should therefore explore other options also before deciding to go for a personal loan.
Also read: Should You Take Personal Loan?
