How to identify hidden fees in personal loans
What's the story
Navigating personal loans in India can be tricky, especially with hidden fees lurking around. These fees can add up to a significant amount, making your loan more expensive than you thought. Knowing these fees is important to make informed financial decisions and avoid surprises. Here's a look at common hidden fees in Indian personal loans and how to spot them.
#1
Processing fees: A hidden cost
Processing fees are charged by lenders to process your loan application. This fee is usually a percentage of the loan amount, ranging from 0.5% to 2%. While some lenders may advertise zero processing fees, they may compensate for it with higher interest rates. Always check this fee before finalizing the loan.
#2
Prepayment penalties: Think twice before early repayment
Many lenders impose prepayment penalties if you repay your loan early, either partially or fully. The penalty is usually a percentage of the outstanding principal or a fixed amount, depending on the lender's policy. This fee can range from 2% to 5% of the prepaid amount. If you plan to repay your loan early, it's important to check this clause.
#3
Late payment charges: Avoid additional costs
Late payment charges kick in when you miss an EMI payment by the due date. These charges vary by lender but are usually a percentage of the EMI or a fixed amount per missed payment. Missing payments can also affect your credit score, so it's best to ensure timely payments to avoid these charges.
#4
Insurance premiums: Additional layer of cost
Some lenders also make it mandatory for borrowers to purchase insurance policies as part of their personal loans. While this insurance can provide financial security, it also adds to the overall cost of borrowing. The premiums can vary widely based on the policy's coverage and terms, usually falling between 0.5% and 1% of the loan amount annually. It's important to factor in these premiums when calculating the total cost of a loan.
#5
Hidden charges: Miscellaneous fees to watch out for
Apart from the major fees mentioned above, there are other miscellaneous charges that lenders may levy, such as document verification charges, legal fees, or account maintenance fees. These charges may seem small but can add up over time, making your loan more expensive than expected. Read through all terms and conditions carefully before signing any agreement.