Personal loans are popular because they’re quick, flexible, and can be used for almost anything—from medical emergencies to weddings or home renovations. But while lenders often advertise low interest rates, borrowers sometimes overlook the hidden charges in personal loans that can significantly increase the overall cost of borrowing.
To help you avoid surprises, here are 8 hidden charges to watch out for in personal loans.
1. Processing Fees
Most lenders charge a processing fee of 1%–3% of the loan amount. It’s deducted upfront, so if you borrow ₹5,00,000, you might actually receive less after this fee is taken out.
2. Prepayment or Foreclosure Charges
If you repay your loan before the tenure ends, lenders may charge a foreclosure penalty—usually 2%–5% of the outstanding amount.
3. Late Payment Penalties
Missing or delaying an EMI doesn’t just hurt your credit score; lenders also impose hefty late payment charges, often a flat fee or a percentage of the overdue EMI.
4. Part-Payment Fees
Some banks allow partial prepayments but levy charges (1%–3%) for each transaction. Always check if part-prepayment is free or restricted.
5. Documentation Charges
Certain lenders add document handling charges, such as for physical agreements, statement copies, or loan account summaries.
6. Loan Cancellation Charges
If you change your mind after sanction, you may have to pay a loan cancellation fee, plus the non-refundable processing fee.
7. Insurance Premiums
Many lenders bundle loan protection insurance with personal loans. While it provides coverage, the premium is often added to your loan cost, increasing EMIs.
8. GST on Fees and Services
Almost every charge—processing, prepayment, or documentation—attracts 18% GST, which borrowers often forget to factor in.
Tips to Avoid Hidden Charges
- Read the loan agreement carefully before signing.
- Ask your lender for a breakdown of all charges upfront.
- Compare personal loan offers from multiple banks or NBFCs.
- Negotiate for fee waivers if you have a strong credit score.
FAQs on Hidden Charges in Personal Loans
Q: Are processing fees refundable if my loan is rejected?
No, most lenders keep the processing fee even if your loan doesn’t go through.
Q: Can I avoid foreclosure charges?
Some lenders waive them after a lock-in period. Always confirm before applying.
Q: Do online personal loans also have hidden charges?
Yes, digital lenders also include fees like convenience charges or statement requests.
Final Thoughts
While personal loans are convenient, ignoring the hidden charges in personal loans can make borrowing more expensive than expected. By reading the fine print and asking the right questions, you can save thousands and choose a loan that truly fits your needs.