Are you one of those looking to send your ward abroad for higher studies? Or need some additional funds for healthcare exigencies? Or simply want to renovate your home? For all these, you require funds and in case you have inadequate funds, you can meet your fund mismatches by applying for a personal loan. After all, personal loans are a prudent choice, which do not require any security and allow repayments in the form of EMIs over a flexible repayment tenure. Note that to make the most out of a personal loan, you must ensure to choose the lender offering optimal loan amount at the lowest personal loan interest rate and processing charges.
Also, before hitting on the personal loan apply online option on the preferred lender’s site, ensure to use an online personal loan EMI calculator to compute the personal loan EMI and repayment tenure as per your choice. Doing so may allow you to make an informed decision and prevent you from encountering any defaults in the future owing to a financial burden.
However, like any loan option, personal loans come with various charges too, which you must beware of before opting for this option. A proper understanding of personal loan fees and charges may prevent you from unnecessarily incurring charges, which results in an increment in your overall loan cost. Read on here to know some common personal loan fees and charges –
- Processing charges
Lenders tend charge a specific administrative fee while processing your personal loan. Processing charges differ from one lender to another and may be as high as 3 per cent of the loan proceeds. You may either pay the processing charge upfront or allow your lender to deduct it from the disbursed loan proceeds. Note that at times, especially during the festive season, some lenders may either lower the charge or offer a waiver on it.
- Verification charges
Before the lender processes your loan amount, they may require assuring you have the potential to repay the loan. For this, they merge with external agencies, who authenticate your provided credentials. Besides this, the agency also reviews your previous credit repayment record and your credit score to better understand your eligibility for a personal loan. As it is an additional expenditure for the lender, the cost accrued on your verification is added to your loan cost.
- Penalty on default of loan EMI
Lenders offer you the option to repay the borrowed proceeds in small instalments in the form of EMIs. Thus, you must ensure to repay the loan EMIs by the due date. Failure to pay the EMI on time may make you incur a massive penalty. Owing to this reason, it is necessary for you to select an EMI according to your repayment potential in place of mindlessly choosing a higher loan EMI to reduce your overall interest constituent burden.
- Prepayment and foreclosure penalty
If the personal loan is available to you at a fixed rate, lenders may levy a foreclosure or prepayment fee. Charges for foreclosure and prepayment may go as high as 4 per cent of the principal constituent or prepaid component, respectively.
Note that there are even a few lenders who do not allow part prepayment while others may allow this just after you have repaid a predetermined number of EMIs. However, personal loans at floating interest rates do not come with any foreclosure or prepayment charge as the Reserve Bank of India has prohibited lenders from incurring such charges on loans offered at floating rates. Thus, in the case you are looking to prepay your personal loan in the future with surplus funds, you must prefer opting for a lender providing personal loans at minimal or nil prepayment charges/limitations.
While certain charges like verification and processing fees are unavoidable, you may easily avoid other personal loan fees and charges. Additionally, when opting for personal loans, make sure to compare amongst different lenders to get the lowest rate of interest and processing charges. Proper comparison before hitting on the personal loan apply button allows you to get a better interest rate according to your credit score, repayment potential, income, and other crucial parameters.