Personal loan costs : interest rate, processing fee and other charges

Interest rate: This is the key cost of taking a personal loan. Being an unsecured loan, the rate of interest is high. In fact it is lower to only credit cards in the loan segment. The rate of interest charged, can be anywhere between 14% and 23%, depending on the type of borrower. Borrowers with poor credit history will be charged a higher interest rate.

Interest is not the only cost incurred while taking a personal loan. There are several other costs which need to be factored in to arrive at the total cost of the loan. They include

• Processing Fee: This is a charge levied by the bank for processing your loan application. The fee is to be paid up-front at the time of submitting the loan application. Processing fees are either a percentage of the loan amount or a flat fee. Most banks charge anywhere between 1% and 2 % of the loan amount.
• Pre-payment Fee: This is a penalty levied by the lender for paying the loan ahead of schedule. It is typically charged as a percentage of the outstanding loan amount. It is generally permitted only after a certain interval of loan disbursal. The fee can be anywhere between 2% and 5% of the outstanding loan amount.
• Late payment charges: Charges are levied on payments made after the due date. This can be in the range of 2% and 3%.
• Charges on Cheque bounce: If you cheque is not honored by the bank on account of insufficient funds, the lender will charge you a flat penalty for the same which can be in the range of Rs. 250 – Rs. 500.
• Charges for duplicate statement: On sanction of the loan, the bank will provide you a detailed repayment schedule. If you happen to need a duplicate one, banks will charge you around Rs. 100- Rs. 500 for the same.
• Documentation charges: For verifying the borrower’s documents for the purpose of loan processing, banks charge anywhere between Rs. 500 and Rs. 1,000.