Personal Loan

What Hidden Charges Should You Expect with Personal Loans


A personal loan is an excellent way to fulfil your life’s objectives. It can provide quick and easy access to cash. It can be used for purchasing a dream home or simply travelling.

Furthermore, rapid disbursement and low lending rates are advantages. These loans, however, have certain drawbacks. There are many additional personal loan charges.

The costs are substantial, and there is a danger of incurring extra debt. Charges, such as processing or application fees, could be taken upfront in some situations throughout the personal loan paperwork and application process. Some charges, though, may be invisible.

As a result, you will end up paying way more than they expected. This article will go through ways to avoid such personal loan processing costs entirely.

What is a personal loan?

A personal loan is a type of loan that does not need assets or security. It is available with little paperwork and can be used for any purpose. This loan can be used to meet any valid financial necessity. You must return it in line with the terms agreed upon with the bank. It works just like any other loan.

Hidden personal loan charges

Here are some charges to keep in mind when applying for a personal loan:

  1. Goods and Services Tax (GST)

Previously, service tax and VAT were levied on loan-related services. It is now the Goods and Services Tax (GST). This is seldom stated throughout the loan paperwork procedure. Instead, it appears unexpectedly during the payment. The sum is relatively large in India. In India, the benchmark for any loan approval service is 18%. This means that for every Rs. 100 that you pay, Rs. 18 are charged as GST.

  1. Processing Fees

These are the most typical hidden personal loan charges that appear on your loan. This may be levied upfront. It may also be taken from the loan amount when it is disbursed. This cost is usually non-refundable. It is not little, either. It is between 2% and 3% of the total application amount. These expenses will very likely increase your payback amount rather than decrease it.

  1. Charges for switching repayment modes

You will be fined if your means of payment are abruptly changed. Such a change may be from cheque to auto-debit. During the loan term, lenders typically charge roughly Rs. 500 + 18% GST as a switching charge.

  1. Interest rates are in effect.

Personal loan effective interest rates range from 10.99% to 24% p.a. The top limit may be raised in the case of non-salaried persons as well. Other elements, such as credit score, bank connection, and financial stability, also contribute to calculating the relevant interest rate.

  1. Prepayment penalties It is also known as pre closure charges for personal loan. Additional EMI sums or trying to close your loan early may result in penalties. These range from 2–5% of the remaining balance. Why are there prepayment penalties? According to financial firms, they miss out on the interest rate on prepayment. They could have received this interest if the return was made on time.
  1. Charges for duplicate documentation

For reissuing loan-related documents, the financial institution would levy an additional cost. Statements, NOCs, credit reports, and other documents may be included. Duplication typically costs between Rs. 50 and Rs. 500 (+18% GST).

  1. Cancellation Fees

Now, this is a standard part of every service you use. It appears while booking a trip or a personal loan. The fees differ from one lender to the next. They might range from a flat Rs. 1,000 to roughly Rs. 3,000 + an extra 18% GST. Some banks may not impose a fixed fee. However, the prevailing interest rate among loan disbursement and cancellation days might be charged.

  1. Late payment penalties

This is an obvious choice. You will be punished if you fail to make your payments. You could also be fined for any delay in repaying your EMIs. You cannot return your loan amount early or beyond the due date. Late payment penalties might range from 2% to 3% of the EMI amount. This suggests you might end up paying more interest on the late charges than you did on your loan!

  1. Other costs

Depending on the bank, there may be varying relevant costs. This might be fixed by the type of lender or the customer’s repayment habits. The type of loan approved or even the location from which it is approved also contributes to this. Stamp charges and other legal fees may also be charged.

How to avoid these charges?

  1. Examine the loan agreement.

Before signing any contract, it is necessary to properly read and evaluate it. The same is true for personal loans. Going through lengthy pages of monetary terms might be laborious. Yet, it is vital to realise that the borrower and lender’s oral dialogue is documented on paper.

  1. Identify each charge.

Many charges with complex titles may be included in a loan agreement. Examine each fee carefully and discuss it with the lender to have a better understanding.

  1. Make a budget.

You must manage their funds. You should also check the loan arrangement. These penalties are typically charged in the event of a default. Missed payments or complete nonpayment are examples of default. Thus, a borrower must ensure enough funds for the loan’s set EMIs.

  1. Look into the lender.

If something seems too good to be true, it probably is. Some lenders provide speedy approvals but charge high hidden fees, such as for a returned check. Thus, be wary of random internet lenders. Compare several lenders to find the best pricing. However, you should also consider the lender’s reputation. A reputable lender will provide complete information and transparency. Check online feedback from clients for additional validation.


Remember, before you apply for a personal loan, obtain all relevant information and do a lot of research. This will enable you to make an educated decision and choose the best personal loan option. Read more blogs by Piramal Finance to always be aware!