Personal Loan

All you need to know about hidden charges with a personal loan


People often take out personal loans to meet their expenses. It is one of the easiest ways to solve financial problems. Besides, the conditions on the credit type are also flexible. However, there is one single problem with the personal loan. Often, you will find people paying more than what is required. It usually happens because they are unaware of certain hidden charges. These are usually not hidden in typical terms. What happens is either the person taking the loan isn’t aware, or somehow his actions caused the penalties. As a result, he would have to pay way more every month than what was decided.

Therefore, the best option is to understand the hidden charges of a personal loan. In the following article, we have illustrated some of these charges that everyone should know about. In addition, we have also discussed tips on how not to fall for the penalties. This will help you save many bucks that would have gone into the monthly payments without your knowledge.

Top hidden charges for a personal loan one should know

In this section, we have mainly discussed the major hidden charges creditors usually levy on personal loans. These can be avoided if you act smartly and gain knowledge beforehand. This guide will be extremely beneficial for you in the long run.

GST and processing fees

First and foremost, many creditors charge GST and processing fees on personal loans. If you check through the various details of creditors, you will certainly come across some names offering a 0% processing fee. Choosing such a creditor will help you greatly lower the payment bill amount. You won’t have to pay any processing fees or GST while taking the personal loan. Usually, the processing fee can vary from 2% to approximately 10%. On the other hand, the GST charged is approximately 12%.

Claim cancellation charges

You must pay cancellation charges if you have insurance against the loan and raise a claim. For instance, let’s say you insured the personal loan against a down payment of three months. If you cannot pay for three months, you can use the insurance claim money to repay the debt. You request the claim. Suddenly, you acquired enough funds to pay off the three-month debt. As a result, you won’t need the claim money anymore. Naturally, you will cancel the claim on the loan insurance. The creditor will now charge you cancellation money. Sometimes, the cancellation charges can be way more than the total payable interest.

Claim settlement and foreclosure charges

Another hidden charge for personal loans is a claim settlement or foreclosure charge. You can settle or foreclose a claim under two conditions. First, the creditor can settle the loan if you cannot pay half the total debt. Second, you can raise the settlement request if you cannot pay due to disability or injury. When you foreclose the claim, you must pay a certain percentage of the settlement money as penalty charges. This is because once you settle the claim, the creditor won’t be able to claim interest. It means a permanent stoppage of one of the creditor’s income sources. To suffice, you will be charged a penalty for foreclosing on the loan.

Prepayment charges

Just like you get charged with foreclosure, some creditors can even impose penalties for prepayment. You will pay the entire amount in advance, well in advance of the tenure’s end date. Therefore, you can close the loan after completing the total debt repayment. If you do so, the creditor can charge you for paying the loan much earlier. It is usually done for credits where prepayment is not allowed.

Late payment penalties

One of the most common types of hidden charges is late payment penalties. Usually, you need to pay a certain percentage as late payment interest when you delay paying the amount. However, this penalty will be charged only after the grace period. Certain creditors charge the penalty interest amount within the grace period. Therefore, you should know the company terms and conditions and the loan policies. All late payment interest charges and grace period issues will be addressed in the policy.

Repayment mode: swapping charges

Sometimes, you can get charged for swapping the repayment mode of the personal loan. Let’s say you paid the loan until now with a check. If you change the method to a debit card or online payment, you may get charged extra. Usually, public banks offering personal loans do not incur any charges for swapping the repayment mode. However, certain private creditors will charge you a penalty for doing so.

How to prevent paying hidden charges on a personal loan?

Now that you know about some of the major hidden charges of a personal loan, it’s time to understand some prevention methods. Here are a few tips to avoid any hidden charges for our loan.

  • You should always check the policies and terms and conditions of the creditor. This will help you know about processing fees, foreclosure charges, and prepayment penalties.
  • Ask the creditor about any probable penalty charges if you want to swap the repayment mode.
  • Set auto debit from your bank account to prevent any late payment interest. Also, you should ask the creditor about the grace period to avoid any charges.
  • You must be more vigilant and aware of the loan and the monthly invoice generated. Go through the bills to understand what you are paying for. In normal conditions, you must pay the monthly instalment comprising the principal amount and monthly interest. 
  • Anything extra can be considered a hidden charge that the creditor has imposed. If this happens a lot, you should file a lawsuit against the creditor.


This article has discussed some of the major hidden charges for a personal loan. You now know how to avoid exceeding the stipulated amount without any reason. If you want more insights into the hidden charges or the ways, do not fall into the trap, consult with Piramal Finance. The company has gained enough experience in the finance and credit fields. Their experts can help you understand and compare different personal loan options to avoid all the unnecessary fees.