What are Hidden Charges to Watch with a Personal Loan?

Personal loans can serve as a lifeline during financial emergencies. They offer convenience and flexibility, but you need to be vigilant about hidden charges in personal loans that might catch you off guard. While the interest rate is the most apparent cost, there are many other charges associated with personal loans that you should know to make well-informed decisions.

Additionally, understanding these charges is key to ensuring a smooth borrowing experience and safeguarding financial well-being in the long run. Therefore, this article will shed light on what are the hidden charges to watch with personal loan.

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Hidden Charges You Must Know While Considering a Personal Loan

Processing Fees

You may have to pay the lender fees to process your loan application when you borrow money. These are the most common hidden charges in personal loan that covers administrative work costs. They might not seem like a lot of money, but they can add up and make borrowing more expensive. It’s important to know that processing fees are usually not refundable and can be 2-3% of your borrowing amount. Keep this in mind when you plan your finances.

Moreover, electronic payment methods are widely used. Some lenders charge a processing fee for loan payments made by cheque. To avoid this fee, use electronic payment methods or factor in the fee when making your loan payment.

Prepayment Penalties

Prepayment penalties are the type of personal loan hidden charges that you must be aware of when considering a personal loan. These penalties are fees the lender imposes if the borrower decides to pay off the loan before the agreed-upon terms. Additionally, the main intention behind these prepayment penalties is to compensate the lender for potential interest income they would have earned if the borrower had continued making payments according to the agreed-upon terms until the loan tenure ends.

Furthermore, the details of the prepayment penalties can often be buried in the loan agreement’s fine print, making them easy to overlook during the loan application process. And, when you might assume they have the flexibility to pay off the loan early without any additional cost, only to find out later about this hidden charge in personal loan. Therefore, it is crucial to inquire about the prepayment penalties before finalizing the personal loan agreement.

Late Payment Fees

Late payment fees are another important hidden charges in personal loan that you should watch out for. These fees are incurred when a you fails to pay the loan installment by the due dates specified in the loan agreement. While some lenders might offer a grace period before applying late fees, ensuring the potential consequences of missing a payment is essential.

Also, these charges vary from lender to lender and are typically expressed as a fixed amount or a percentage of the overall loan installment. Besides, late payment fees can negatively impact your credit scores, potentially making it more challenging to obtain a loan. Therefore, it is important to read the terms and conditions of the loan agreement before finalizing the personal loan. Also, these charges can increase to 2-3% of the EMI amount.

Cancellation Charges

Cancellation charges are the most commonly levied on almost every service nowadays, whether it’s flight or train booking or availing personal loan. These charges are applicable when a borrower decides to cancel or withdraw their loan application after the lender has approved it. They are somewhere between 1,000 to 3,000 with 18% GST. However, some institutions may not charge a flat fee but will charge the application interest rate between loan disbursal and cancellation day.

To avoid these cancellation charges, you must carefully read all the terms and conditions of the agreement before signing it. And understand the terms related to loan cancellation will help you make well-informed decisions.

Duplicate Documentation Charge

You must know about these hidden charges in personal loan while considering a personal loan. Duplicate documentation charges may be levied by some lenders if a borrower request copies of loan-related documents or statements beyond the initial provision. While it might seem reasonable to expect free access to loan documents, some lenders include provisions to charge for additional copies in their terms and conditions. Therefore, as mentioned earlier, it is better to carefully review the agreement before signing it.

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Conclusion

To conclude, while personal loans offer a quick and convenient financial solution, it is essential to be aware of all the personal loan hidden charges. Before deciding, reviewing the terms and conditions of various loan offers and understanding their costs is crucial. This will help you make a well-informed choice.