Costs of a Personal Loan
A personal loan is an easy way to get money in an emergency or to take care of a personal need. Weddings, home improvements, travel, education, medical bills, and shortfalls in an emergency are all common reasons.
Since a Personal Loan is quick and easy to get, it is quickly becoming a popular way for salaried and self-employed people to quickly get money when they need it. For lenders, it makes it easy to get back the Interest on loans with terms of 12 to 60 months.
Before you apply for a personal loan, it’s important to know about all the fees and other costs that may come up during the loan’s repayment.
You don’t have to pay fees upfront to get a personal loan from a bank or NBFC. The main things that will change your costs are:
The Rate of Interest
The rate of Interest, or ROI, is how much it costs to move money from one place to another. Personal Loans have interest rates that range from 11.29 to 22% per year.
It is charged every month, which lowers the balance. Every payment to the bank includes a portion of the Interest and the principal loan amount. For Personal Loans, the interest rate stays the same for the whole term.
The interest rates on a Personal Loan, which a borrower can shop around for, vary from bank to bank based on the borrower’s profile, monthly income, and credit history.
The processing fees
Processing fees are the fees that the bank or non-bank financial company (NBFC) charges for evaluating the loan request, doing the verification, and meeting the underwriting requirements. Depending on the lender’s rules, fees can range from $0 to 2.5% of the loan amount. It is a variable charge, and discounts are given to people with an account, people with a high income, and people who want to borrow more money. As a rule, a processing fee of up to 10 lakhs is charged for loans of 10 lakhs or more.
Most of the time, fees for a Personal Loan are taken out of the loan amount. In a mortgage, on the other hand, you have to pay upfront for the legal paperwork. After the loan is paid out, the processing fee is not refundable.
How Is The Personal Loan Processing Fee Calculated?
The processing fee is based on a very small amount of the loan. The amount could be different between lenders. In India, the processing fee is usually 0.5% of the loan amount. It is on top of the GST.
Can I get the personal loan processing fee back?
What if you don’t get a personal loan? In that case, a written statement from the bank will help you get your money back since processing fees are usually not refundable. Before making a loan payment, most online lenders take the processing fees out of the total loan amount. Because of this, you get less money than you asked for.
Is The Processing Fee Mandatory For Personal Loans?
Each bank sets a minimum and maximum amount the borrower must pay in loan processing fees. This fee can be paid ahead of time or taken out of the loan amount when it is given out.
Personal Loan Insurance
With today’s fast-paced lifestyle, it is quickly becoming necessary to be prepared for every eventuality. All providers of personal loans give borrowers the option of purchasing insurance to cover loan repayment. The purchase of insurance for a personal loan is not required.
The applicant will be protected under the insurance policy terms in the event of a temporary inability to pay due to job loss or a medical emergency. The insurance will take over if the borrower cannot repay the loan due to unforeseen circumstances.
Typically, a fee of 750 is assessed per lakh. This sum may be paid in full upfront or incorporated into the EMI.
Fees for prepayment and foreclosure
The choice to partially repay or return the borrowed amount is known as a part-payment or pre-closure facility. The applicant can access this option according to the lending authority’s rules and regulations. While some organisations have a set time limit or “lock-in period” during which the applicant must make 6 to 12 EMIs before the loan can be repaid, other organisations permit foreclosure or partial payments whenever extra funds are available.
The fee that will be assessed on the amount paid toward the loan varies between financiers, ranging from zero surcharges to 5%* of the amount as the loan amount is repaid in full; the fee must be paid on the principal balance decreases.
Suppose the applicant plans to repay the loan before the full term has expired. In that case, it is crucial to be aware of the policy for Part payment & closure of the Personal Loan before applying.
Charges levied for cancellation of a Personal Loan.
Suppose the loan amount is satisfied by a different source, if there is no longer a need for the loan, or if there has been a change in plans. The borrower may withdraw their application or accept a smaller loan if their loan has reached approval. However, after the contract is signed, money will be electronically transferred from the lending institution to the applicant’s bank account.
The borrower will have to ask for the loan to be cancelled if they now want to return the money.
The applicant will be responsible for paying the processing fees and any fees associated with cancelling the loan. A standard fee of $3000* and Interest for the number of days after the applicant has returned the funds are included in the cancellation charges.
What Fees Are Applicable for an EMI Return? (Bounce)
On a predetermined date, an electronic debit will be made from the salary account to pay the EMI or installments for a borrowed personal loan. Before the EMI date, some Banks do send out a notification. However, the borrower must maintain sufficient funds in the account to pay the installment. The lender may be asked to represent the EMI if funds are limited and the EMI bounces.
In any case, fees are assessed for the return of each installment, ranging from $50 to $500*, and additional Interest is assessed for each additional day the amount is not paid. At 24 per cent yearly, the Interest is high.
What are the Charges applicable for a change of the repayment mode?
It is essential that the applicant maintains a balance in the account or notifies the lending organization and requests that the repayment mode be switched in the event of a change in salary account along with a change in employment. Before closing the original account, the repayment mode should be changed because the EMI must never be returned as unpaid. Whatever the reason for non-payment, it will appear as a bounce in the track record. A swap of the repayment mode carries a fee of 500/-* per transaction.
Charges for Duplicate Documentation
Keep close at hand any documents that provide information on the terms and conditions of the Personal Loan disbursement in case you need them. The applicant should keep in touch with customer service if the original Personal Loan documents still need to be received. The applicant will inevitably need a schedule of their personal loan’s amortization and a statement. In this case, they can apply to the bank, which will charge them 500/-* per document.
The GST (Goods and Services Tax) and other charges
The current tax rate, or GST, applied to all services related to loans, according to the tax department, is 18%. Processing fees, prepayment and part-payment fees, repayment mode swap fees, cancellation fees, missed repayment fees, duplicate statement issuance fees, etc., are a few. Stamp duty and legal fees are additional costs that can change depending on the lender’s requirements.
Knowledge and awareness of all fees that apply to a person from the point of disbursement through various stages and until the end of their tenure are crucial. It will keep the consumer in the lead to maximize savings and avoid paying unnecessary expenses.