Personal Loan Processing Fees

A processing fee is a one-time fee levied by lenders to cover the administrative costs involved in processing and disbursing a personal loan. The fee is usually deducted upfront from the loan amount or added to the total cost of the loan.

Lenders charge a processing fee to recover costs incurred during the loan application process. This includes document verification, employment and income checks, and other administrative procedures to assess the borrower's creditworthiness.

Personal loan processing fees usually range between 0.5% to 4% of the loan amount. While some public sector banks may charge lower fees, private banks and NBFCs can charge higher fees based on their internal policies and the applicant's credit profile.

Processing fees are usually non-refundable, even if your loan application is rejected or if you cancel the loan post-approval. However, some lenders may offer promotional waivers or lower processing fees during festive seasons.

Last updated on 16 Dec 2025

GST at the rate of 18% p.a. is applicable to processing fees, verification and documentation charges, EMI dishonor charges, foreclosure charges, etc. This tax adds an extra cost to your personal loan. However, the principal amount and the interest paid are not subject to GST.

Let’s take an example - You have applied for a personal loan of Rs 5 lakh from HDFC Bank. The bank charges a processing fee of Rs 6,500. The GST on the processing fee would be Rs 1,170 (18% of Rs 6,500). The total processing fee you would have to pay would be Rs 7,670.

To accurately understand the true cost of a personal loan, it’s important to consider fees and charges along with the personal loan interest rate. The Annual Percentage Rate (APR) gives a clearer picture of the total borrowing cost by factoring in not only the interest but also additional charges like processing fees and verification costs.

APR (Annual Percentage Rate) is the annualized cost of borrowing, expressed as a percentage. It includes:

You can use an APR calculator available online. Let’s say you availed a personal loan of Rs 5 lakhs @ 11% p.a. with a 5-year repayment tenure. The processing fee charged is 2% of the loan amount, which amounts to Rs 10,000. Therefore, its APR will be 12.89% and the total borrowing cost of your personal loan will be Rs 1.80 lakh.

Most applicants focus only on the interest rate before applying for a personal loan. Overlooking associated charges can significantly impact the overall cost of the borrowing. Fees such as foreclosure penalties, processing charges and verification fees can quietly add up, turning what seems like an affordable loan into an expensive one.

Here’s how being aware of these charges can help you make more informed decisions: