What Are the Hidden Charges in a Personal Loan?

Estimated read time 3 min read

Running into fiscal problems is not unheard of, but is cumbersome without the appropriate support. That’s where a personal loan comes into play. Whether you need it for education, for an emergency trip or to renovate your humble abode, personal financing is always a reliable pillar to bank on.

However, while you set the whole plan of availing this support in motion, there’s one thing that you absolutely cannot skip – reading through the terms and conditions. And there’s a good reason for it!

Due to frantic efforts to get this financing, you might skip through reading the fine print’s intricate details. While you may think you’ve got everything from the personal loan fees and charges to the regulations down to a T, that may not be the case. These also comprise individual costs that hide behind the ‘*’ or the ‘#’ symbol on the application form or online portal.

Want to know about these hidden charges in personal loans? Here they are:

Processing charges and fees

These are the standard hidden charges that most personal finance offering entails, where the lender either deducts from the disbursed amount or charges them upfront. While it usually varies according to lenders, these fees are non-refundable and range from 2-3% of the total application amount. Since they aren’t normal, these charges can be notorious for increasing your repayment instead of making things easier.

Cancellation charges

Cancellation charges are a staple today, whether you’re booking flights, train tickets or availing personal financing. However, many are still unaware of these, and cancelling or paying off loans earlier can burden you with penalties such as this one. Lenders can charge anywhere between Rs. 1,000 to Rs. 3,000, often slapping on a flat 18% GST to make things worse.

Effective interest rates

While the quintessential personal loan interest rates may be terms you’re familiar with, effective interest rates are also applicable, which are not instantly visible in the terms and conditions. These can range anywhere from 10.99% to 24% per annum. The upper parameter may even jump higher for non-salaried applicants. Moreover, your relationship with the lender, CIBIL score, and financial stability might also be determinants in this scenario.

Prepayment charges

Lenders may find it problematic when you intend on paying off loans beforehand. They lose out on the interest rates they’d get if the repayment adhered to the fixed tenure. Hence, prepayment charges exist in some cases. These are the same penalty fees you’ll incur, should you repay the loan ahead of schedule, and lenders usually charge 2-5% of the outstanding amount.

Duplication charges

Financial institutions may also charge extra fees when you reissue loan-related documentation, such as credit reports, NOCs, statements, etc. These are duplicate documentation fees that lenders apply and charge anywhere from Rs. 50 to Rs. 500, along with 18% GST for duplicity.

Thus, if you’re about to apply for financing, be sure to thoroughly read through the details and not skip anything. In doing so, you’ll combat such hidden charges in a personal loan in the right way.

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