A personal loan can be taken for innumerable reasons. You may need one to attend to financial emergencies or for recreational purposes. The beauty of this loan lies in the fact that you can get one without providing any security or collateral with easy, minimal documentation. You can use the loan amount at your discretion without the lending institution putting any restrictions or limitations on how you choose to spend the money. However, since a personal loan in India is unsecured in nature, lenders usually levy certain charges and fees to sanction it. Let’s take a gander at the charges associated with a personal loan.
Verification charges: Every lender; whether it is a bank or an NBFC requires assurance that the borrower has the capacity to repay the loan amount within a stipulated tenure. Suppose you apply for a personal loan from a bank. In that case, the bank hires a third-party, external agency to verify your credit behaviour. The external agency checks your credit repayment behaviour and your credit scores and submits a report of the same to the bank. Since the borrower is the beneficiary of the loan, the verification charges are to be borne by him as it becomes an added cost for the bank.
Processing charges: When you apply personal loan, banks have to bear certain administrative charges to process and sanction the loan amount. As a result they charge a processing fee. The processing fee is typically a small amount which amounts to approximately 0.5% to 2.50% of the total loan amount. The rate may vary from lender to lender and a minimum and maximum amount is also set. This is usually a fixed rate with no room for negotiation. The borrower has the choice to either pay the processing fees upfront or have the fee amount deducted from the loan amount during disbursal.
GST tax: Completing the loan formality is considered a service which is rendered by the bank or NBFC. In some cases, borrowers may even require certain additional service during the entire duration of the loan; from sanctioning to repayment. To this effect, the borrower must bear a small fee, which is the GST tax on the personal loan.
EMI default penalty: Borrowers may repay the loan amount in affordable equated monthly instalments or EMIs. They must ensure that they have sufficient finds in their savings accounts to pay the monthly instalments on time. Should a borrower fail to pay an instalment, he may have to pay a penalty for defaulting on the EMI payment.
Prepayment charges: Banks earn money from the interest paid by borrowers on the loan amount. If a borrower decides to pay off his debt before the chosen tenure, the bank typically incurs a loss on their investment. This is why they levy foreclosure charges. You may have to pay a small foreclosure/prepayment charge of 2-4% if you choose to repay your personal loan before its stipulated tenure.
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