Know How to Avoid Hidden Charges in Personal Loan
20 Jul 2022
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When you find yourself in a financial emergency, a Personal Loan can be a boon. You can use funds from the loan to pay for all kinds of emergencies and planned expenses. But, like every other loan, Personal Loans come with certain unavoidable costs like interest rates, processing fees, GST, etc. While lenders inform you about these costs upfront, they mention other additional charges in fine print under the terms and conditions section of the loan agreement. Here’s a breakdown of all possible Personal Loan charges you must know.
What Is A Personal Loan?
A Personal Loan is a type of unsecured loan, i.e., the lender does not ask you to pledge collateral. The lender loans you the funds you need and levies interest on it. The interest you must pay depends on the amount loaned and your chosen loan repayment tenure. You typically have to repay the loan in Equated Monthly Instalments or EMIs, until you have repaid both the principal amount borrowed and the interest charged on it.
Personal Loan Charges Levied By Lenders
Following are the common Personal Loans Charges that lenders typically levy.
• Effective Interest Rates
You usually choose a lender based on the interest rate they offer. Your lender would inform you that interest rates start from 10%. That does not mean you get a 10% interest rate. The actual or effective interest rate can be higher than 10%. The effective personal loan interest rates ultimately depends on your eligibility. A high credit score and income can fetch an attractive interest rate.
• Processing Fees
Lenders charge loan processing fees to cover costs incurred while approving and disbursing your Personal Loan. The fee is typically a fixed percentage of your loan amount. If your loan application gets rejected, the processing fee remains non-refundable.
Another common Personal Loan charge you need to bear is the standard 18% Goods and Services Tax (GST) levied on the loan processing fee. Since GST is a standard, legally applicable tax on all products and services, lenders may not out rightly mention the charge as GST.
Lenders generally offer a free-look period of 24 to 48 hours to allow you to cancel the loan after fund disbursal. However, if you choose to cancel the loan after the free look period, you would be liable to pay the cancellation charges and the outstanding loan amount.
Lenders allow you to prepay your loan before the stipulated loan tenure ends, but they may charge you a prepayment penalty. This charge is levied based on when you decide to prepay the loan during the loan tenure. For instance, the lender may waive the prepayment charge if you opt to prepay the loan after paying 12 EMIs. However, there is no pre-payment charges for individual Retail Loan customers.
Hidden Charges in Personal Loan
While lenders generally inform you about the charges mentioned above upfront, there are some costs which may not apply to borrowers who pay off their EMIs on time. These may be interpreted as the hidden charges in Personal Loans and primarily include the following.
• Late Payment Fee
A crucial Personal Loan charge most people seem to ignore is the late payment penalty. Lenders charge late payment fees if you pay your EMI later than the due date. The fee is a percentage of the EMI amount.
• EMI Default fee
Lenders also penalize you if your EMI cheque bounces or if there is insufficient money in your account linked to your EMI payments facility. This fee is known as an EMI default fee.
• Penal Interest
Penal interest is the additional interest that lenders apply on unpaid EMIs. Lenders charge penal interest on late and default payments.
• Balance Transfer
If you choose to transfer your Personal Loan from your existing lender to another lender offering more lucrative terms, you have to pay a loan balance transfer fee. Your current lender levies this charge since they lose out on the potential interest income.
• Electronic Clearing Service (ECS) Swapping
When applying for a Personal Loan in India, you typically provide your bank account details for EMI payments. The lender may charge an ECS swapping fee if you pay your EMIs from a different account than the one from which you originally paid EMIs.
• Duplicate Documentation Charges
You must also pay the lender if you want a copy of your amortization schedule, loan balance, and no-dues certificate (NDC) in case of a balance transfer. The lender levies a duplicate documentation charge for providing this service.
Ways to Find Out Hidden Charges In A Personal Loan
When lenders sanction a loan, they typically do so with the belief that you will repay your EMIs on time. As a result, they mention the charges associated with loan sanctioning up front. However, as discussed above, there are other Personal Loan charges you need to account for besides the standard charges. Here are ways you can save yourself from surprises later.
• Be aware of all possible costs
Familiarize yourself with the potential costs of the loan and ensure you ask your lender about the same. For instance, if you know about penal interest charges, you will ensure that you pay your EMIs on time.
• Read the fine print in the loan document
The loan documents comprise numerous pages containing information on various charges that lenders can levy. Read the loan agreement document thoroughly and check the effective interest rate, EMI due date, prepayment charges, etc., before signing up for the loan. If you have queries, talk to your lender before signing any documents.
• Choose a reputed lender
Today, you can apply for Personal Loans online and get instant disbursals. However, if a relatively unknown lender offers the loan at low costs, find out their motivation for the same. The chances are that there may be several hidden charges in Personal Loans that you may not be prepared to pay later.
How A Baroda Personal Loan Works
Bank of Baroda offers Personal Loans to finance urgent cash requirements. You can enjoy Bank of Baroda Personal Loans with attractive interest rates and speedy processing terms.
Features & Benefits
- High-value loans: Bank of Baroda offers Personal Loans up to Rs 15 Lakh to finance numerous expenses.
- Attractive interest rates: You enjoy attractive interest rates based on the loan amount you need and the repayment tenure you select.
- Flexible repayment terms: You can repay your Personal Loan in tenures lasting up to five years.
- No hidden costs: Bank of Baroda notifies you of all loan-specific costs upfront, with complete transparency. You can enjoy nominal processing fees and prepayment charges.
- Multipurpose loan: You can use the Personal Loan amount without end-use restrictions. For instance, you can pay for vacations, wedding planning, medical emergencies, home repairs, etc.
- Minimal paperwork: We process loans with minimal paperwork, such as your ID, address and income proof. You can even apply for the loan online and submit scanned copies of these documents.
- Speedy approvals and disbursals: The Personal Loan approval process requires shorter timeframes. Therefore, you receive the loan amount in your bank account rapidly.
Who Can Apply?
You can apply for a Baroda Personal Loan if you fulfil the following criteria.
Salaried and self-employed individuals are eligible for Baroda Personal Loans. Individuals must be employed with private companies, public sector undertakings, partnership and proprietorship firms and educational institutions with a collective work experience of more than one year. Self-employed doctors, chartered accountants, consultants, architects, and other such professionals should have their practice running for more than two years.
You need to be a Resident Indian national to qualify for the loan. The bank does not provide this facility to NRIs and PIOs currently.
The minimum age to get a Personal Loan in India is 21 years. Your age at the time of loan repayment should not exceed 60 years if you are a salaried individual and 65 years if you are a self-employed individual.
• Credit Score
Your credit score should be above 701 points.
• Monthly income
Your minimum net monthly income should exceed Rs 20,000 to qualify for Personal Loans in India.
You must submit the following documents with your Bank of Baroda Personal Loan Application.
- Duly filled loan application form with two recent passport-size photographs
- Identity Proof (PAN/Aadhaar/Voter ID/Driving License/Passport)
- Address Proof (Driving License/Passport/Utility Bills/Bank Passbook/Bank Statements)
- Last six month’s bank statements
- For salaried individuals: Salary slips for the last three months
- For self-employed individuals: Balance sheets, Income Tax Returns, TDS Certificate, and Business Proof (Registration Certificate/Gomasta License/Service Tax Registration, etc.)
Apply For A Bank of Baroda Personal Loan
Personal Loans are collateral-free loans that lenders approve based on your creditworthiness and repayment capabilities. With Bank of Baroda, you can get high-value Personal Loans at competitive interest rates and flexible repayment tenures. You can apply for Bank of Baroda Personal Loans online. Existing bank customers can also enjoy Pre-approved Personal Loan offers with zero processing fees and instant disbursal. Call our toll-free number 1800 5700 or head to your nearest Bank of Baroda branch for more information.
The contents of this article/infographic/picture/video are meant solely for information purposes and do not necessarily reflect the views of Bank of Baroda. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Bank of Baroda and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or reliability of any information contained herein or otherwise provided and hereby disclaim any liability with regard to the same. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Bank of Baroda or its affiliates to any licensing or registration requirements. Bank of Baroda shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
CIBIL Score for A Personal Loan
Do these lines look familiar to you? You must have come across such messages while inquiring or applying for a personal loan. Well, CIBIL score or credit score is one of the common types of checks in the basic Know Your Customer (KYC) documentation process for personal loan approval.
Complete Guide On Pre-Approved Personal Loans
If you need money urgently, you may consider taking out a collateral-free and unsecured Personal Loan. You can choose the Personal Loan amount and wait for the lender to confirm the eligibility, while the final approval process may take time. However, sometimes lenders notify you that you are eligible for a Personal Loan, even if you don’t apply for one. Such loans are known as Pre-approved Personal Loans. Read on to learn more about these loans.