When applying for a personal loan, most borrowers focus primarily on the interest rate. However, there are several hidden fees and charges that can increase the total cost of borrowing. These fees vary across lenders and can impact the overall affordability of the loan.
Understanding these common fees associated with personal loans can help you make an informed decision, avoid unexpected costs, and choose a loan that aligns with your financial needs.
In this blog, we’ll cover:
- The different types of fees charged on personal loans
- How these fees impact your loan repayment
- Ways to minimize loan costs and hidden charges
- RupeeQ insights to help you get the best loan deal
1. Processing Fees
What is Processing Fee in a Personal Loan?
A processing fee is a one-time charge that lenders deduct when disbursing the loan. It covers the administrative costs involved in verifying your documents, assessing eligibility, and processing the loan application.
How Much is the Processing Fee?
- Banks:5% to 2.5% of the loan amount.
- NBFCs: 1% to 4% of the loan amount.
- Digital Lenders: ₹500 to ₹5,000 (fixed or percentage-based).
Example
If you take a ₹5 lakh personal loan with a 2% processing fee, the lender will deduct ₹10,000 upfront, and you will receive ₹4.9 lakh in your bank account.
2. Prepayment or Foreclosure Fees
What is it?
If you want to repay your loan early, some lenders charge a prepayment or foreclosure fee. This is done to compensate for the interest loss they incur when a loan is closed before its tenure.
How Much is the Prepayment Fee?
- Public sector banks (like SBI, PNB): No prepayment charges.
- Private banks and NBFCs: 2% to 5% of the outstanding loan amount.
Example
If you prepay ₹3 lakh of your outstanding loan and the lender charges 3% foreclosure fees, you will need to pay ₹9,000 extra to close the loan.
When Can You Prepay Without Charges?
- RBI mandates no prepayment charges on floating-rate personal loans.
- Some lenders allow partial prepayment after 12 months without charges.
RupeeQ Tip – Before signing the loan agreement, check the prepayment terms to ensure you can close the loan early without heavy penalties.
3. Late Payment Fees
What is it?
If you miss an EMI due date, the lender charges a late payment penalty along with additional interest on the overdue amount.
How Much is the Late Payment Fee?
- Banks: ₹500 to ₹2,000 per missed EMI.
- NBFCs: 2% to 4% per month on the overdue amount.
Impact of Late Payments
- Affects credit score
- Results in higher penalties and increased financial burden.
Example
If your EMI is ₹10,000 and you miss a payment, a 2% penalty means you will pay ₹200 extra per month until you clear the dues.
RupeeQ Tip – Set auto-debit for EMIs to avoid missing payments.
4. Loan Cancellation Fees
What is it?
If you change your mind after loan approval and wish to cancel the loan, lenders charge a cancellation fee. This fee covers the processing and verification costs.
How Much is the Loan Cancellation Fee?
- Banks: ₹1,000 to ₹5,000.
- NBFCs & Digital Lenders: ₹2,000 to ₹10,000.
Example
If you cancel a ₹3 lakh loan after approval, you may need to pay ₹3,000 as cancellation charges, even if you haven’t received the money.
RupeeQ Tip – Read the loan terms carefully before applying. If unsure, compare multiple options on RupeeQ before committing to a loan.
5. Stamp Duty and Legal Charges
What is it?
Lenders charge stamp duty and legal fees for loan documentation, as per government regulations.
How Much is the Stamp Duty?
- Varies by state (typically ₹500 to ₹2,000).
- Included in the processing fee in many cases.
Example
In Maharashtra, stamp duty on personal loan agreements is 0.1% of the loan amount. On a ₹5 lakh loan, the stamp duty would be ₹500.
RupeeQ Tip – Stamp duty is a mandatory government charge and cannot be avoided. However, it is usually minimal compared to other fees.
6. Loan Restructuring or Rescheduling Fees
What is it?
If you are unable to repay your loan due to financial difficulties, some lenders offer a loan restructuring option, where they extend the tenure or reduce EMIs. However, they may charge a restructuring fee.
How Much is the Restructuring Fee?
- Banks: ₹2,500 to ₹10,000.
- NBFCs: 1% of the remaining loan amount.
RupeeQ Tip – Loan restructuring should be the last resort, as it may impact your credit score. Always check for lenders offering flexible repayment options without additional fees.
How to Minimize Personal Loan Fees?
To reduce unnecessary costs when taking a personal loan, follow these strategies:
- Compare lenders before applying – Some banks offer zero processing fees and lower prepayment charges.
- Choose a lender with low prepayment penalties – If you plan to repay early, opt for a bank with no foreclosure charges.
- Avoid late payments – Set up auto-debit instructions to prevent penalty charges.
- Borrow only what you need – Higher loan amounts attract higher processing and interest costs.
- Read the loan agreement carefully – Ensure you understand all hidden charges before signing.
Be Aware of Hidden Costs in Personal Loans
When taking a personal loan, it’s essential to look beyond interest rates and evaluate all associated fees. Some lenders offer low-interest rates but charge high processing fees, making the loan expensive. By understanding these charges, you can choose the most cost-effective option and avoid unnecessary expenses.
Key Takeaways
- Processing fees and prepayment penalties are the most common charges.
- Late payment fees impact your credit score and increase the loan cost.
- Loan restructuring and rescheduling fees apply if you modify the repayment terms.
- Stamp duty and legal fees are unavoidable but usually minimal.
- Always read the loan agreement carefully to check for hidden charges.
By being informed, you can save money, avoid extra costs, and choose a personal loan that best suits your financial situation.
Looking for a personal loan with minimal fees? Compare the best offers on RupeeQ today!
