Very often we fail to read the fine print in a loan document. The real cost of your personal loan is visible only when you factor in numerous other charges levied. If you intend to make comparisons with other types of loans, it is necessary to take into account these charges to arrive at the real cost.
For example, the processing fee or prepayment fee in the case of a personal loan will be different from that of a loan against property.
Here is a list of all charges that are levied either before the loan is disbursed or through the course of the loan or when you terminate the loan:
Description of Charges:
- Processing fee
- Prepayment fee
- Charges for late payment (loans)
- Cheque bounce charges
- Duplicate statements charges
- Documentation charges
- Service tax
Processing fee is the amount charged by banks to cover the cost of processing your loan application. Processing fees vary from one bank to another. Some banks ask you to pay the processing fee upfront even before the loan is sanctioned. This is often charged when you submit your loan application along with the supporting documents.
The processing fee is generally a percentage of the loan amount and is between 1-2 per cent for personal loans. Some banks levy a flat charge of Rs 1000 or Rs 2000 upfront, and then deduct the balance processing fee (if any) from the loan amount before disbursal.
The processing fee is non-refundable. Some banks say the processing fee will be refunded if the loan is not sanctioned. It is recommended that you take this in writing from the bank as technically, processing fee is non-refundable.
The pre-payment fee is the penalty paid by the borrower for foreclosing the loan before the actual tenure. Pre-payment fees are levied as a percentage of the outstanding principal of the loan amount. The prepayment fee varies from bank to bank. It varies from 2-5 per cent of the outstanding loan amount, if the repayment amount exceeds 25 per cent of the outstanding loan amount.
Charges for late payment:
When the monthly installment (EMI) towards repayment of a loan is delayed the bank collects the installment along with late payment charges. The late payment charge is also known as the delayed payment charges or the overdue payment charges. Late payment charges are fixed at the time of signing the loan contract.
This is chargeable if you make the payment after the due date. Late payment fees range from 2-3 per cent of the EMI.
Cheque Bounce Charges:
Cheque bounces mean that a cheque has been presented for clearance, but the amount written on the cheque exceeds the available balance in the account. It is often colloquially referred to as a bounced cheque. Businesses frequently use the term dishonoured cheque. If you have given post-dated cheques to the bank to debit the EMI from your account, ensure that you have sufficient funds in your account every month. If a single cheque bounces, the bank charges anything from Rs 250 to Rs 500 as penalties.
Duplicate Statements Charges:
When the loan is sanctioned, the lender gives you a statement detailing the repayment schedule. If you lose it, you can request the bank to issue a duplicate statement. The statement indicates your balance loan amount and the remaining EMIs. Banks charge anywhere between Rs 100 to Rs 500 for issuing duplicate statements.
Banks levy documentation charges towards the verification of the various documents you provide towards the loan application. Many banks employ third-party vendors to do the document verification. The expense on this account is usually passed on t the customer, which range from Rs 500 or Rs 1000.
Service tax is a tax levied on service providers who have annual revenue of more than 8 lakh. Banks loans too fall under the purview of service tax. Service tax is charged at the rate of 12.36 per cent.