Information on Personal Loan Charges and Fees - Personal Loan Blog - Tata Capital

Personal Loan Charges and Fees

Mar 01, 2017

There are numerous charges associated with loans, the main being interest rates. The other fees levied on borrowed finance include late payment charges, processing fee, foreclosure charges, swapping fee, and cancellation charges.

Sometimes, borrowers sign the loan agreement without reading the charges applicable on the loan. These fees increase the total cost of the loan. Thus, it is imperative to have knowledge about these fees before submitting your loan application. You may also compare these costs between lenders as such charges vary from lender to lender.

Following are four charges associated with a personal loan.

  1. Rate of interest
    A loan is an agreement between a borrower and a lender, wherein the borrower promises to pay back the borrowed sum, known as the principal, along with a pre-defined rate of interest. This amount is paid back within a certain period, known as loan tenure. The interest rate on the loan is the most important cost of borrowing. It reflects the profit made by the lender in the transaction.
  2. Prepayment charge
    This refers to the fee being imposed due to prior repayment of the loan amount. The interest aspect of the loan is the lender's profit. However, with prepayment, lenders lose out this amount and hence compensate for it by levying a prepayment charge. Most lenders permit prepayment six months after the loan disbursal.
  3. Processing fee
    Another important cost associated with personal loans is a processing fee. This fee is levied to fund all the costs related to processing the loan application, mainly verifying the personal loan documentation, checking the borrower's credit score, and any other administrative expenses. This is a non-refundable fee. Beware of banks and lending institutions which offer a zero processing fee, as it may turn out to be a pure marketing gimmick.
  4. Swap charges
    Borrowers have an option of making repayments through multiple modes, like cheque, electronic transfer, or deduction from a personal savings account. However, if you register for a particular mode, you have to repay through the same mode throughout the loan tenure. If you wish to swap from one payment mode to another, there are certain charges applicable. Hence, choose wisely to avoid swap charges while changing the repayment mode.

Besides the above-mentioned fees, there are miscellaneous charges applicable on personal loans. Borrowers also have to pay service tax and any other government tax. Other fees include cheque bouncing charges, application cancellation charges, foreclosure charges, issue of duplicate repayment schedule charges, and fees associated with legal processes. Such fees are subject to change, at the discretion of the lender. It is imperative to have a proper understanding of these fees to ensure transparent personal loan process.