Actual Cost of a Personal Loan: Don’t ignore these fees and charges
03 October, 2024 | 11:55 IST
If you are considering applying for a personal loan, understanding the personal loan cost is important for managing your finances effectively. Whether you are looking forward to funding a big purchase, covering unexpected expenses, or consolidating debt through a personal loan, an assessment of total repayment is important. Knowing the overall personal loan cost will help you make an informed decision.
In India, the personal loan cost involves more than just the interest rate. While personal loan interest rates are a significant component, other fees and charges contribute to the overall expense.
Let’s understand in detail the factors that affect the total personal loan cost:
Personal loan rates: Interest rates or personal loan rates are the most noticeable part of the cost while availing a personal loan. They determine how much interest you will be paying for the principal amount you borrow. Personal loan rates can vary based on your credit profile, the lender’s policies and the type of loan you choose.
Processing fee: Personal loan processing fee is a one-time charge that the lender imposes for evaluating and processing your loan application. The personal loan processing fee is usually a percentage of the loan amount and can be up to 4% of the principal amount. Many lenders also charge a flat processing fee based on the loan amount. While the personal loan processing fee might seem minor, it adds to the total loan outgo. Therefore, it’s important to factor it into your total personal loan cost.
Prepayment and foreclosure charges: If you plan to repay your loan early, either in part or in full, lenders may charge prepayment or foreclosure fees. These charges compensate the lender for the interest income they would lose due to early repayment. The prepayment penalty can vary but is generally around 2% to 5% of the outstanding amount. Before committing to a loan, check if your lender imposes any prepayment or foreclosure charges and how they might affect your personal loan cost.
Late payment fees: Late payment fees are applicable if you miss an EMI payment. These fees can vary depending on the lender but are usually a fixed amount or a percentage of the overdue EMI. Consistent late payments can also negatively impact your credit score, potentially increasing your future borrowing costs. To avoid these fees, ensure that you make timely payments or set up automated payments through your bank.
Other charges: Some lenders might impose additional charges such as document handling fees or administrative costs. While these are less common, it is important to read the loan agreement, and terms and conditions, thoroughly to understand the potential personal loan cost.
Availing a personal loan has become hassle-free with the advent of digital platforms like Moneycontrol, which offer a 100% paperless process. Users can apply for instant loans up to Rs 15 lakh, with interest rates starting at 12% per annum. You can also track all charges and check the EMIs through the Moneycontrol app and website.
To get a clear picture of the total cost of a personal loan, you should calculate both the interest payments and any additional fees. Use an EMI calculator to estimate your monthly payments and the total amount payable over the loan tenure. This tool will help you understand how different personal loan rates and loan terms affect the overall personal loan cost.
If you are keen to know how to minimise your personal loan cost, here are a few ways in which you can do it:
Improve your credit score: A higher credit score can qualify you for lower personal loan rates, reducing your overall personal loan cost. You can track your credit score for free on digital platforms like the Moneycontrol app and take steps to improve it.
Compare lenders: The personal loan interest rates and personal loan processing fees could vary depending on the lender. Compare offers from multiple lenders to find the most cost-effective loan for your needs.
Choose a shorter tenure: While longer loan tenures might reduce your EMI amount, they often result in higher total interest payments. Choosing a shorter tenure can lower the total personal loan cost.
Negotiate fees: Sometimes, lenders might be open to negotiating the personal loan processing fee or other charges. Do not hesitate to ask for a reduction, especially if you have a strong credit profile.
In summary, understanding the actual personal loan cost involves more than just looking at personal loan rates. By considering the personal loan processing fees, prepayment charges and other costs, you can make a well-informed decision. The Moneycontrol app provides a user-friendly platform to apply for personal loans with reasonable processing fees and transparent terms. By staying informed and comparing your options, you can minimise the cost of borrowing and manage your finances more effectively.
When applying for a personal loan, understanding the total cost is crucial to avoid any surprises. Apart from interest rates, fees like processing charges, prepayment penalties, and late payment fees can significantly add up to your overall expense.
Disclaimer
This piece/article was written by an external partner and does not reflect the work of Moneycontrol's editorial team. It may include references to products and services offered by Moneycontrol.
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