What are the Critical Personal Loan Charges
March 12, 2024

What do you do when you urgently need funds during a financial crisis and don’t need restrictions on using the money, like in a home or car loan? The answer is you go for a Personal Loan. Personal Loans are unsecured loans that are much more convenient than conventional ones because you can pay them back over time in affordable instalments and receive swift disbursement with minimal documentation.

Although personal loans are an excellent way to get money quickly, banks impose specific fees on this loan because it’s unsecured- meaning you aren’t obliged to put up any assets as security for the loan. Besides, personal loan charges are also different based on the bank and the interest rate. So, without further ado, let’s find out the common personal loan fees associated with the amount you borrow so you can have a precise estimate.

The primary cost of funds is the personal loan interest rates starting from 10.65% p.a. For ICICI bank, you can avail of an unsecured loan at EMI as low as Rs 1878/ lakh. For HDFC Bank, the bank offers personal loans with interest rates ranging from 10.65% to 20% per annum, with fixed rates. The interest rate for a personal loan is applied at a monthly reduced balance and is fixed for the entire term.

Loan Processing Charge

This is the amount the bank charges when your loan is processed, and the bank charges a small amount of the overall loan as an administrative expense. The processing fee or the personal loan origination fee amount is minimal, and the charge is around 0.5% to 2.5% of the overall loan amount. Note that the processing charges for personal loans vary from bank to bank, and an individual Applying For a Personal Loan can have the cost deducted from the actual loan amount during the disbursement.

For the two leading banks, the loan processing charges or the non-refundable origination charges for ICICI Bank are up to 2.5% of the loan amount plus the applicable taxes. Meanwhile, for HDFC Bank, the processing fee is about 0.5 to 2.5% of the total loan amount, which is nearly the same amount.

Verification Charge

When you Apply for a Personal Loan from a bank, the bank has to ensure that you can repay the loan in a timely and according to the conditions of the loan after the personal loan eligibility check. To ensure this and verify your identity and overall information, banks appoint a third party that verifies your credit history and checks your repayment history. Banks incur expenses for ascertaining the overall lead there is no separate verification charge, and it is part of the processing fees paid by the applicant.

Penalties for Loan Default

When you secure a loan, the bank structures your repayment into monthly instalments based on the loan amount, duration, and interest rates. However, the key determinant for these instalments is your ability to repay. If you opt to pay off the loan faster but fail to meet these monthly payments, the bank will impose penalties for defaulting on your instalment payments. Selecting instalment amounts that align with your financial capacity is crucial to avoid such penalties.

For ICICI Bank. The penalties for late payment is 24% per annum, the repayment mode swap charges include ₹ 500/- per transaction plus applicable taxes, the loan cancellation charges are ₹ 3000+ taxes, and the EMI bounce charges are ₹ 500 and the applicable taxes. In addition, there is a non-maintenance of Mode of Payment or NNMP charges that sum up to ₹ 800/- and the applicable taxes or statutory levies.

Prepayment Charges

Most of the time, people think about what would happen if they had the funds to pay the loan early and could do it. If you have the funds to settle a personal loan early, you can repay or close the loan beforehand. However, banks typically discourage this practice since they lose out on anticipated interest income. Consequently, they impose a prepayment fee, typically ranging from 2% to 4% of the loan amount, which may vary depending on when you decide to clear the loan.

Goods and Services Tax (GST)

Banks extend various services to borrowers throughout the loan term, including loan processing and ongoing support. These services attract taxation, leading banks to levy goods and services tax (GST) on the customer based on the services used. HDFC Bank charges 18% GST on personal loans, and so does ICICI Bank.

Duplicate Statement Charges

If you require details regarding your payment schedule or lose track of repayment progress, the bank offers assistance by providing duplicate statements and other pertinent information. However, availing these services incurs a fee known as the duplicate statement fee. These statements not only aid in tracking outstanding loan amounts but also complement the paperwork associated with the loan. In addition, the Amortization Schedule charges for HDFC Bank Personal Loans are Rs.50/- per schedule of physical copy. However, customers can also download this from the website free of cost.

Conclusion

Believe it or not, Personal Loans are one of the best financial tools individuals can use to meet their expenses. However, getting a personal loan isn’t just about the interest charged on the loan amount there are a few other charges and personal loan fees that should be considered. Need financial advice concerning personal loan charges, or have any queries about which financial institution is the best option for personal loans? You can always depend on Your Loan Advisors for financial assistance.


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