When we think of a financial emergency, the easiest solution seems to be a personal loan for most of us. Flexibility, hassle-free documentation, fast disbursement by lender, non-collateral and easy availability make personal loans a favorite among borrowers. While personal loan interest rates are a major criterion while applying for a personal loan, not many of us consider the total cost of our personal loan. Various charges, fees, and penalties levied on the loan amount increase the total cost of your loan.
It is advisable that whenever you apply for a personal loan, understand all the applicable charges. These charges may not be reflected in your personal loan EMI calculator findings. Here are some of the commonly charged costs in personal loans:
1. Interest charges:
The personal loan interest rates is a little higher as compared to many other loans. This is because it is an unsecured loan. The interest rate can vary from single-digit to even around 30% – depending upon your age, repayment record, credit score, and the lender you have shortlisted, etc.
2. Processing fees:
The administrative charges incurred during loan application personal loan eligibility checks have to be borne by the borrower. The processing fee ranges from 0.5% p.a. to 3% p.a. of the total loan amount. This fee is non-refundable in case the loan is canceled after approval.
3. Goods and services tax (GST):
GST is applicable on all loan-linked services like cancellation charges, processing fees, prepayment charges, duplicate documentation charges, EMI bounce charges, etc. The current GST rate levied on all these services is 18%. It should be kept in your knowledge that GST is not applicable on interest charges.
4. EMI bounce charge:
Before you decide to apply for a personal loan, it is noteworthy to know that a penalty awaits you in case you missed an EMI or delayed the payment. Most lenders charge a 2% to 3% monthly or 24% yearly interest on the outstanding amount. Other lenders may also charge a flat amount and GST for every missed EMI.
5. Prepayment or foreclosure charge:
The loan can be pre-paid before the tenure ends if your finances stabilize after a certain period. But it is possible only after the lock-in period ends. The prepayment charge can go up to 5% of the remaining balance.
6. Loan cancellation charges:
Due to any reason, if you need to cancel the loan after its approval or disbursement, you have to pay a loan cancellation charge. Some lenders charge a flat amount + 18% GST. Other lenders may charge the interest payable between the loan disbursal and cancellation day.
7. Repayment Mode Swapping Charges:
In case you change the mode of loan repayment, like auto-debit to cheque or vice versa, there is a charge for it too. Generally, a flat amount plus GST is charged, although it is free in the case of many lenders.
8. Duplicate documentation charges:
If you wish to get your loan-linked documents reissued, the bank may charge a fee somewhere between Rs. 50 to Rs. 500 + 18% GST for the same. You can avoid this by opting for soft copies instead.
Lenders apply these charges to cover the various administrative expenses they incur while providing the personal loan to you. These charges are not entirely avoidable, but with a reliable lender, you can obtain the utmost clarity on the actual cost of your personal loan.