Personal Loan

What are the common fees associated with loans?


Loans are the best way to raise funds and cover expenses. Personal loans are the best kind of loans. They are quick, convenient, and have fewer interest rates. However, personal loans don’t only concern the interest charged on the loan amount. The other charges are the processing fee for personal loans and specific grants. It is essential to check if the loan is affordable after considering the interest rates of personal loans, processing fees, and other charges. The customer should not only match the interest rates. The foreclosure fees and repayment criteria should also be checked and then considered.

Fees and personal loan charges that are needed for a personal loan

  1. Processing fees 

Most of the administration costs are known as “processing fees.” Banks generally bear these costs when the loan is being processed. The processing fee of personal loans varies depending on the bank. The amount is not too much and is mainly within the range of 0.5% to 2.50%. Deduction of the processing fees can either happen straight from the account, or the amount of the processing fee will be deducted from the loan amount at the time of its foreclosure fees or repayment.

  1. Cheque bounce fees

These fees are generally taken when the cheque given by the borrower bounces. It is a kind of personal loan charge. Sometimes, the cheque deposited by the customer bounces. It can happen because of an out-of-limit payment or technical issues. The processing fee for personal loans, in this case, is nominal. It is also known as a “cheque dishonour charge.” These amounts are typically deducted at the time of loan disbursement. Depending on the lender, the payment may differ. Repeated cheque bounce or dishonour can lead to higher charges wanted by lenders. 

  1. Verification fees 

Before disbursing the loan, the bank will send a third-party official or an agency to the customer’s house. It is sent to verify the capability of the customer to repay the loan. The agent will check the credibility of the customer. They will verify the relevant credentials of the customer applying for the loan. The agent will verify the credit score. They will also check if the customer has taken loans before and the repayment patterns. This is the processing fee for personal loans. The banks collect these fees as part of the verification process. It is known as the verification fee.

  1. Penalties for foreclosure fees on the loan

A foreclosure fee generally means early repayment of the loan amount. The customer who borrows the loan repays it before the specified time of the loan payment. The financial institution may lose money if the customer pays before the due date. This loss happens because they are not getting the calculated amount of interest as they prepare everything about the loan according to the tenor. This is also included in the processing fee for personal loans. The loan was disbursed before the fixed term. The bank charges for this loss. The bank charges a penalty for this loss. The amount charged by the bank for the foreclosure fees of the loan is called the penalty for foreclosure fees. The penalty is generally nominal. Banks can charge between 2% and 4% as the penalty for the foreclosure fees on the loan.

  1. Delayed EMI payment

The repayment of the loan taken by the customer can be done in several ways. A customer can repay the amount withdrawn through the EMI. It is known as the “equivalent monthly instalments.” Legally, the customer has to repay the bank in the given amount of time by the bank. The customer is responsible for the timely payment of the EMI, and it is paid without any complications. If the customer fails to pay the bank within the given time, the bank will charge a penalty. The penalty for delayed EMI payments is the most vital processing fee for personal loans. The customer taking a loan must know about this charge. This is why customers should carefully plan their finances before taking a loan. Also, calculating the monthly EMI payment is equally important so that the repayment is done on time without any foreclosure fees or late repayment of the loan.

How much can a lender charge for a processing fee?

There are no certain rules or regulations by any financial banks on the charges of the processing fee for personal loans. The lenders can charge however much they want, but the law requires all individual loan fees to be transparent and non-discriminatory. The charges taken by the lenders should be affordable for the customer as per the actual loan amount. Typically, the amount of these processing fees vary depending on the banks or financial institutions. The amount should be lawfully correct, whether it is verification charges or foreclosure fees.

Other fees or loan charges that the customer might face

Application fee 

Banks take the application fee mainly to cover the cost of processing a loan application. Staff times, making copies of the customer’s credit report, verification forms, etc. The application fee is mandatory even if the customer is not accepted for the loan. The customer must be sure of qualifying before applying for the loan. It is also compulsory in cases of foreclosure fees. Some lenders might not charge the application fee.

Origination fee.

An origination fee is called an underwriting fee. This type of fee generally comes with mortgages or student loans. This fee depends on the credit score of the customers. A good score will require the customer to pay a lower fee. A bad credit score will make the customer pay a high rate for the origination fee.


Wrapping it up, a personal loan comes with many processing fees. These charges should be disclosed to the customer beforehand. The costs are generally nominal but are compulsory. If anyone wants to know more about personal loans and finances, Piramal Finance will help with that.