Knowing the actual cost of a Personal Loan

Earlier, applying for a Loan was difficult since there were too many requirements and lots of paperwork involved. Moreover, the process was complicated, and banks took many months to approve your request. However, with new-age systems in place, managing them has become fast, convenient, and easy.
A Personal Loan is ideal for borrowers because of its flexible end-usage, various repayment options, attractive interest rates, and minimum documentation. With quick access, you can use the funds during emergencies. Apply for it online through websites and apps for a user-friendly experience.
Charges involved
There is a considerable cost while applying for Personal Loans. Besides the interest paid, you also pay for other charges like processing fees, stamp charges, prepayment and foreclosure charges, EMI bounce charges, etc. You can borrow it for numerous reasons like weddings, medical emergencies, vacations, home renovations, etc.
Actual cost
During your Personal Loan apply, you often wonder what its actual cost may be. You repay the interest and principal amounts as EMIs every month until the tenure ends. Here is a list of charges making up the actual cost:
Prepayment charges
Most banks allow you to prepay the borrowing before the tenure ends. They have a lock-in period ranging between six to 12 months. You cannot prepay your Loan right after taking it. Wait and pay the EMI during the lock-in period before getting debt free. The prepayment charges vary between banks and include 2% to 5% of the outstanding amount.
EMI bounce charges
You need to repay the instalments on time. In case you miss paying them, the bank asks you to pay the EMI bounce charges that can be around Rs. 500. Set reminders or enable the auto-debit feature on the Bank Account to pay the EMIs on time, become a responsible borrower, and boost the credit score.
Loan cancellation charges
If you cancel the Loan after approval or disbursal, the bank can ask you to pay a cancellation or interest fee with GST from the disbursal date until the day it got cancelled. Additionally, you pay Loan swapping charges if you change the repayment method during the tenure.
Goods and Services Tax
Currently, the GST applicable on Loan services such as processing fees, prepayment and part-payment charges, cancellation charges, duplicate statement issuance charges, etc., is 18%. GST does not apply to interest charges. A Personal Loan includes other charges like stamp duty and legal costs.
Conclusion
When you add up these charges, it leads to the actual cost. Get complete clarity on all the fees applicable before applying for the Loan, borrow the right amount, and select the ideal tenure according to your repayment capacity.