What are the charges & fees on personal loans?

One of the biggest concerns while availing a personal loan is the variety of fees and charges that are associated with it. The total cost of loan goes up tremendously due to these allied expenses that come along with a personal loan whose rate of interest is already higher than the other loans. Therefore the customer has to carefully study all such additional charges while taking a personal loan to in order to be able to decide better on the actual utility of the loan.

The Processing Fees: This refers to administrative cost that is involved in processing and sanctioning the loan by the financier. Typically this amount varies from 0.5% to 2% of the total loan amount which is chargeable to the borrower. Most banks have a fixed minimum and maximum percentage of processing fees that can be levied on the borrower. The applicant pays this fee upfront or the same is deducted from the actual amount that is disbursed subsequently. Thus in a personal loan of Rs. 500000 the processing fee could be as high as Rs. 10000.

Verification Charges: The banks usually get the credentials of the applicant verified by hiring external agencies. The cost accrued from this verification process is generally passed on to the customer who pays it in the form of verification charges.

Penalty on Late Payment of EMI: The repayment of most of the personal loans is done through Equated Monthly Installment. In case the customer fails to pay up the EMI on time the financier levies an additional penal interest on the outstanding amount which may be to the tune of 2% per month. Thus defaulting on a personal loan can become a costly affair for the borrower.

Prepayment Penalty: Though it might sound a bit surprising the banks even charge the customer who wants to repay the loan ahead of the schedule. This is termed as pre payment penalty which may range from 2% to 5% of the outstanding amount that is being prepaid. This is charged since the lender would loose out on the anticipated interest that would have been gained by the continuation of the loan.

Duplicate statement Fees: In case the customer requires a duplicate statement of the payment schedule and balance of outstanding loan at any point of time the bank may charge an additional fee for providing the same. Typically such fee ranges from Rs. 200 to Rs. 500 for a single time duplicate statement.

Service Tax: Any service that is provided by the bank to the customer against the payment of a fee attracts an additional service tax of 12.5% which is also borne by the customer.

The banks have powers to waive off a majority of these additional charges if the customer can bargain well with the concerned authority. The sum total of all these allied charges can substantially increase the amount repaid by the borrower by the end of the tenure. Thus it is in the best interest of the customer to carefully all such fees and charges while taking the personal loan.