Charges and fees on Personal loans

Charges and fees on personal loans

The following are some common charges applicable on Personal loans:

• Processing fees: These are the administrative expenses incurred by a bank in processing a loan application. They range from around 0.5% to 2% of the loan amount subject to a fixed minimum and are usually recovered from the borrower. So, for example, if you take a loan of Rs. 10,00,000, you might end up paying up to Rs. 20,000 as processing fees on it. You may have to pay these fees upfront or they may be deducted from the loan amount sanctioned to you.

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• Pre-payment penalty: You might be surprised to know that most banks charge you a fee if you want to repay your loan ahead of schedule. These fees are known as pre-payment penalty. Banks levy these to cover the interest income they would lose because the loan is being prepaid. These penalties are usually in the range of 2% to 5% of the outstanding amount.

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• Late payment penalty: Repayment of a loan is done through Equated Monthly Instalments (EMIs). In case the borrower doesn’t pay an EMI on time, it constitutes a late payment and attracts a penalty as such. These penalties are around 2% of the EMI amount.

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• Duplicate statement charges: In case you lose loan statements issued to you, your bank issues you duplicate copies of the same. But the bank would charge you around Rs. 500 for it.

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• Verification charges: Banks use outside agencies to verify the documents submitted by their customers. The costs of this verification are usually passed on to you.

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• Service tax: All the charges levied by a bank attract a service tax at the rate of 12.36% p.a.