Personal Loan

Here’s to know do you have to pay interest and fees on a personal loan?


Here’s the thing – if you have taken a loan, you definitely have to pay interest. In fact, you have to pay interest on every loan except for No Cost EMIs.

Apart from interest, there are other charges associated with a personal loan as well. We’ll discuss these charges in this article as well.

Also, lenders can charge more for their services. That’s because borrowers don’t have to put up any collateral to get a personal loan. 

Personal loans are a kind of unsecured loan in which the borrower doesn’t need to put up any collateral. Nowadays, borrowers can get a personal loan without filling out lengthy applications, even without providing supporting papers. 

In this article, we discuss personal loan interest and charges.

So, without further ado, let’s jump right in!

What is Loan Interest?

To take out loans, you must pay interest. A personal loan of Rs. 20,00,000 can cost you about Rs. 2,30,000 with interest payments during your lifetime. This is an extra Rs. 30,000 as personal loan interest.

The principle and the interest are both reduced with each payment made toward the loan. The interest rate that a lender applies to a loan depends on several variables. These variables are:

  • The borrower’s credit history
  • Yearly income
  • Loan amount
  • Loan conditions
  • Existing debt levels

Simple interest

Calculating loan interest using the simple interest technique is a breeze. To determine the total interest paid, you’ll need to know the following:

  • The original loan amount
  • Rate of interest 
  • Length of years or months over which you’ll make payments

Despite the monthly EMI, interest gets calculated on the remaining principal amount. Also, it will vary from month to month. Suppose the lender does not levy penalties for prepayment. In that case, paying off the loan early can save a significant amount of money.

Lenders use a variety of interest-charging strategies, each aimed at maximizing profits. Interest on loans can be tricky to calculate. That’s because different forms of interest have different mathematical formulas.

How to calculate Simple Interest?

To determine how much interest you’ll pay, use the formula below.

Calculating the interest on a loan is very simple. It’s as simple as multiplying the principal by the interest rate times the loan’s length in years.

Applying the basic interest calculation to a loan of 2 lakh over 5 years at 5% interest gives this result:

2,00,000 x 15% x 5 = 15,000 in interest

The interest rate might be as low as 1% on short-term loans. But we calculate interest differently by banks and other lenders.

Do you have to pay Interest and Fees on a Personal Loan?

Instead of a credit card, a personal loan provides the borrower with a lump sum of money all at once. The remaining balance, plus personal loan interest, is repaid by the borrower in EMIs during the length of the loan.

When you take out a personal loan, the lending company will charge you interest on the money you borrow. You will pay back this sum in instalments during the life of your loan.

You should include interest during the life of the loan, as it can raise the final amount owed to the lender.

Charges associated with Personal Loans

Loan Processing Charge

The bank will pay a small fee for handling the paperwork associated with your loan. The bank assesses this fee to cover the costs of handling the loan’s paperwork and processing. As a rule, this fee is negligible. The percentage applied to your loan balance ranges from 1% to 2.5%. But every bank charges a processing fee.

Verification Charge

Loan approval requires convincing the bank. You need to convince the bank that you can afford to return the money on time and according to the loan’s terms. The procedure causes the bank to hire an outside agency to examine your credit history. The bank must pay for this service, so it hires an outside firm. Thus, this fee is a verification fee, and the borrower pays it.

Penalty on Default

Banks usually allow you to pay back the loan in equal monthly instalments. The loan amount, repayment period, and interest determine the monthly payment. The borrower’s financial stability and capacity to make loan payments also determine this. Yet, there are situations when you will have trouble paying your EMIs on time. In this case, the bank will charge a fee if you delay your payments. That’s because you have stopped paying the required monthly instalments. Thus, you should only agree to EMIs within your financial means.

Prepayment Penalty

Suppose you have access to cash that you can use to settle a personal loan you have taken out. Then, you can either repay the debt or foreclose on it. Banks would rather not do this since they will have to pay interest payments on your loan. So, the bank will charge you a foreclosure fee of 2-4% of the loan’s total amount. The foreclosure charge will also get affected by the loan’s prepayment status.

Goods and Service Tax 

While their clients are amid their loans and processing, banks provide various services. Also, the applicant will have to pay taxes on these services. Due to this, the bank will charge a consumer GST on the services they offer.

Duplicate Statement Fees

The bank is there to help you track your payments or determine where you stand. They’ll do this if you’ve forgotten when the payments were due. The bank will charge you a fee if you request duplicate reports or other information. It’s dubbed a “duplicate statement fee” for obvious reasons. You can also use this documentation to verify the current loan balance. As part of the loan package, the bank also provides these statements.


It is important to figure out how much interest you would owe before applying for a personal loan. Find out from the lender how they calculated the interest. Then, use the proper method (or a calculator) to determine how much personal loan interest you owe.

Consider the aspects that will have an impact on your interest rate as well. Borrowing less money or making payments faster can help you keep more cash. To receive the best personal loan interest rates, you must first search and work on your credit history.