Personal loans have become one of the most convenient ways to access quick funds — whether for emergencies, education, home upgrades, or travel. But while the money may come fast, the fine print often comes with a price. Hidden charges, processing costs, and penalties can significantly increase the total repayment amount if not understood in advance. Knowing how these charges work helps borrowers plan their repayments better and avoid unwelcome surprises later.
Every lender charges a processing fee to cover administrative costs before disbursing a loan. This fee typically ranges between 0.5% and 4% of the loan amount, depending on the bank or financial institution. Some lenders deduct it upfront from the sanctioned loan, while others collect it separately. Importantly, this fee is non-refundable, even if the loan application is withdrawn or rejected.
Many borrowers prefer to clear off their loans early when they have extra funds. However, some lenders impose prepayment or foreclosure charges to offset the interest income they lose when a loan is repaid before its tenure ends. These charges usually range between 2% and 5% of the outstanding amount.
While a few banks now offer zero prepayment penalties, this depends entirely on the terms of the agreement. Borrowers should also note that partial prepayments—where only a part of the loan is paid off—often come with restrictions on how frequently or how much can be paid.
Missing an EMI can do more than dent your savings—it can dent your credit score. Most lenders impose a late payment penalty of around 1% to 2% of the overdue EMI, which can snowball if delays continue.
Unpaid dues may also attract higher interest on the outstanding balance, making the loan more expensive over time. Repeated defaults can trigger legal action and reduce your ability to get future credit.
Apart from standard fees, borrowers must account for state-wise stamp duty and statutory charges, which are usually deducted when the loan is sanctioned. It’s advisable to confirm these details with the lender’s customer support before signing any agreement.
If your EMI bounces due to insufficient balance in your bank account, you’ll have to pay bounce charges, which generally range between ₹500 and ₹1,200 per instance. Some banks may also add administrative fees, document issuance charges, or service costs for providing statements or closing documents.
All of these are mentioned in the Key Fact Statement or the detailed loan brochure — a document every borrower should read carefully before final submission.
A clear understanding of these fees helps borrowers calculate the true cost of borrowing and plan their repayment schedules effectively. Staying on top of payments and avoiding penalties can also help maintain a healthy credit score — ideally above 750 — ensuring easier access to future loans and lower interest rates.
