You can apply for Personal Loans for several reasons. You may need one for financial emergencies or recreational purposes. The best part about this Loan is that you can get one without any security or collateral with effortless, minimal documentation. You can use the Loan amount as you want without the lender’s restriction on how to spend the money.
However, since Personal Loans are unsecured, lenders usually levy certain charges to sanction them. Here is a breakdown of the Personal Loan fees:
Verification charges
Every lender requires assurance that the borrower can repay the Loan within a stipulated tenure. Suppose you apply for Personal Loan from a bank. In that case, the bank hires a third-party agency to verify your credit behaviour. The agency also checks your credit repayment behaviour and scores and submits a report to the bank.
Since the borrower is the Loan beneficiary, you bear verification charges as it becomes an added cost for the bank.
Processing fees
Under Personal Loans, banks need to bear certain administrative charges to process and sanction the Loan amount. As a result, they charge a processing fee. This fee is typically small, leading to approximately 0.5% to 2.50% of the total Loan amount. The rate varies between lenders; a minimum and maximum amount is also set. This is usually a fixed rate with negotiation possible.
The borrower can pay the processing fees upfront or deduct the fee from the Loan amount during disbursal.
GST taxes
Completing the Loan formality is a service which the bank renders. In some cases, borrowers may need additional assistance during the Loan duration, from sanctioning to repayment. So, the borrower should bear a small fee, which is the GST on the Instant Personal Loan.
EMI default penalties
Borrowers should pay the Loan amount in affordable equated monthly instalments. They need to ensure they have sufficient funds to pay the monthly instalments on time. If you fail to repay an instalment, you may need to pay a penalty for defaulting on the EMIs.
Prepayment charges
Banks earn money from the interest paid by borrowers on the Loan. If a borrower decides to pay off their debt before the chosen tenure, the bank typically incurs a loss on investments. Hence, they levy foreclosure charges. You may need to pay a small prepayment charge of 2-4% if you repay the Loan before its stipulated tenure.
