While looking out for personal loans, we tend to focus on the interest rates to decide which loan to apply for. However, several other charges are applicable when you apply for a personal loan. The number of charges applicable and their amount varies from lender to lender. It is important to be informed about these charges in advance to make a better decision about the loan. You can also estimate the cost of borrowing better. Some of the charges that lenders typically charge are mentioned below.
A processing fee is a small percentage of the approved loan amount that the lender charges when processing the loan. The lender charges this to cover the various administrative expenses that it incurs as a part of the loan processing exercise. While it is usually a percentage, some lenders also define a minimum and maximum amount for the same. As the applicant, you can either make the payment for the processing fee upfront or ask the lender to deduct it from the loan amount.
This is an additional interest charged when there is a delay in repayment. As it is added to the overdue installment, your subsequent EMI would appear higher than the usual amount.
As a part of the loan processing exercise, the lender has to carry out some verification formalities. This includes hiring the services of an external agency to assess your credibility, verify your credit score, and study your loan repayment trend. Being an additional cost for the lender, it may get passed on to the applicant.
Personal loan default charges
This charge is applicable only when you default on the EMI payment. Therefore, it is wise to refer to a personal loan EMI calculator and choose a loan duration where the EMI is most favorable to you. This charge is usually a lump sum amount for each EMI dishonor or cheque dishonor.
Mandate rejection charge
This is another lump sum amount charged for each month, provided there is no active mandate for clearance of the monthly EMI. An active mandate linked to your account allows the lender to raise the EMI demand and to receive the repayment amount on time.
The foreclosure charges are different for part-payment and full-payment cases. Besides, the amount may vary depending on when you foreclose or part-pay the personal loan amount. The foreclosure charges reduce as the remaining tenure of the loan reduces.
There are several other minimal charges against various services that you may avail of. This includes an annual maintenance charge, which is only about 0.25% of the dropline amount. Charges may be applicable for loan cancellation, physical copies of the repayment schedule and duplicate statement, outstation cheque collection, duplicate NOC, post-dated cheque, instrument swap, etc. Most of these charges are applicable only if you make specific requests for services.
Not all of these charges are applicable in all personal loan cases. Many of these charges are applicable only when certain situations arise. However, it is essential to be aware of the probability of these charges, the amount or percentage, and the reasons for which they may apply. Lastly, you should get complete transparency about all the costs associated with your loan so that no surprise charges pop up in your loan statement at a later date.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.