Whenever it comes to a financial emergency, personal loan is the preferred choice of many due to its flexible end use, easy application, attractive interest rates, various repayment options, minimum documentation and quick disbursal. A personal loan that is offered upto Rs. 40 lakh can be used to deal with various situations like a medical emergency, wedding, long- due vacation, home renovation, etc.
What is The Actual Cost of a Personal Loan?
But have you ever wondered what is the actual cost associated with a personal loan? Apart from the loan amount and interest rate that you would be paying every month until the tenure ends in the form of EMIs, here are other charges that incur in a personal loan:
- Interest Charges: Since personal loan is an unsecured loan, the interest rate charged on it is slightly higher as compared to a home loan or a car loan. The interest rate of a personal loan starts from 10.50% that can be repaid in affordable EMIs until the tenure ends. The interest rate offered by bank to an individual depends on his age, credit score, employer, repayment history, etc.
- Processing fees: The processing fee covers the administrative costs that bank has to bear at the time of approving and processing your loan application. The processing fee is usually minimal and varies from 0.5% p.a. to 3% p.a. of the total loan amount. You can either get this fee deducted from the loan amount or can pay it upfront. Also, processing fee is non- refundable by most of the banks, which means the lenders will not refund it even if you cancel the loan after its approval
- Goods and Services Tax: Currently, 18% GST is applicable on all loan- related services like prepayment and part-payment charges, processing fee, cancellation charges, duplicate statement issuance charges, etc. However, it is important to note that GST does not apply on interest charges
- EMI bounce charges: If you miss paying an EMI, you will have to pay EMI bounce charges
- Prepayment/foreclosure charges: The banks offer the chance of prepaying your personal loan before the tenure ends. However, most of the banks have a lock-in period that varies from 6 to 12 months. It means you cannot prepay the personal loan before you pay the EMI for that particular duration. Also, there is a prepayment fee charged by the lenders that varies from bank to bank
- Loan cancellation charge: In case you have changed your mind and wish to cancel your personal loan after the approval or disbursal of loan amount, the lender may ask you to pay the loan cancellation fee. A bank may either charge a flat cancellation fee along with 18% GST or may charge the applicable interest payment from the day the loan was disbursed to the day it got cancelled.
- Repayment mode swapping charges: If you plan to change your personal loan repayment mode (let’s say from auto- debit to cheque or vise- versa), you will have to pay a charge. Lenders may charge somewhere around Rs. 500 plus 18% GST every time you swap the repayment mode during your loan tenure
- Duplicate documentation charges: Some of the banks charge a fee of Rs. 50 to Rs. 500 plus 18% GST to reissue the loan- related documents like index, statements, NOCs, amortization, etc. The bank may also charge you a small fee for providing you the information regarding the outstanding loan amount
- Other charges: There can be other charges also that may vary from lender to lender. These charges can be legal or stamp duty charges
The above mentioned points will give you complete clarity on all applicable fee and charges on a personal loan and hence will help you to borrow the right amount and choose an appropriate tenure as per your repayment ability. You can compare the fees and charges and other parameters of a personal loan offered by various banks at Paisabazaar.
