How to Avoid Hidden Fees When Getting a Personal Loan

Personal loans are one of the most common and widely available borrowing options. Borrowers have more flexibility, and the loan amount has no end-use limitation, making it a popular financing choice for millions of Indians.

Due to the fact that this is an unsecured kind of credit, lenders will demand you to meet a number of eligibility requirements as well as agree to their terms and charges before authorizing the loan amount. There may be hidden charges in some circumstances, which can add up to larger costs over time.

Hidden charges of personal loan

Processing fee:

The processing fee is a charge made by the lender to cover the costs of approving and disbursing the personal loan. It is a common charge, and the amount is a fixed percentage of the personal loan amount. Which the borrower is informed of prior to applying for the loan. However, some lenders tack on additional fees, such as service fees, to the total cost of obtaining a personal loan.

Late payment penalty:

When a borrower fails to pay their EMI due on time or defaults on their EMI payment. A late payment penalty is imposed. In this situation, the lender would charge the borrower a late payment penalty. Which typically runs from 2% to 3% of the EMI amount + GST.

EMI Bounce charge:

EMI-bounce occurs when you purposely or unintentionally default on your EMI due to a low balance in your bank savings account. The borrower would often be charged between Rs 600 and Rs 1200 + GST per bounce.

Balance transfer cost:

A balance transfer is a method of moving your outstanding personal loan balance from your current lender to a new lender with better conditions. Because transferring your loan account to a new lender and receiving a no-due certificate is identical to making a prepayment, your previous lender may apply a penalty.

Pre-payment charges:

When borrowers have additional cash on hand. They frequently desire to utilize it to repay the loan in full or in part in order to lower the EMI and interest load. Some lenders, on the other hand, do not allow prepayment of the outstanding loan amount before a particular time period has passed. Some lenders charge a prepayment penalty if you want to make a prepayment and shut the loan account sooner.

Borrowers must be able to prepay their debt in full if they desire to do so. This option is available only once a set number of EMIs have been paid and no delays or late payment charges have been incurred. Prepayment or foreclosure charges range from 0% to 7% of the outstanding loan amount. Depending on the number of EMIs already paid.

How Can I Avoid Getting a Personal Loan With Hidden Fees?

Read the loan terms & conditions:

Always read the loan document carefully before signing the terms and conditions when taking out personal loans. The loan agreement spells out all of the costs that the lender can levy and when they can be imposed.

Check the personal loan interest rates, payback length, repayment mode, and repayment terms and conditions in the loan agreement.

You should not skip this step and read all of the fine print before signing the loan agreement. One of the most typical mistakes made by personal loan borrowers is failing to read the loan agreement. Which causes them to feel stressed once the EMI schedule begins.

Plan your repayment:

To prevent defaulting on EMIs and late payment penalties, always arrange your personal loan repayments according to your repayment capacity. Before applying for personal loans, use the personal loan calculator to determine the appropriate repayment term and EMI amount for you. Carefully read the loan schedule. If at all possible, enroll in the auto-debit / ECS option. Which allows the lender to deduct the EMI amount from your account on a set date. Always be sure that the account designated for this purpose has enough money in it. It will not only help you avoid penalties, but it will also help you stay on top of your finances.

Take out a Personal Loan with a Reputable Lender:

Access to online personal loans has gotten easier thanks to new fintech platforms. One can receive funds deposited to their bank account within a day or two if they meet all of the eligibility conditions and upload the digital version of the documents required for a personal loan. This occurs only if the application fits the lender’s requirements, the documents pass all verification checks, and the loan is approved in its entirety.

Be Aware of the Various Fee Types

Finally, you should be informed of the various costs and fees kinds that are often associated with a personal loan. Knowing ahead of time might help you better plan your repayments and avoid any situations that may result in the payment of such hidden fees.