Understanding the Fees and Charges Related to Personal Loans

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The flexibility of end usage and the unsecured nature of personal loans make it a popular product, as is evident from a recent TransUnion CIBIL report. It reveals that in India, personal loans grew at 28% in the third quarter of 2019, indicating the reliability of this financial tool. A popular option that is, you can apply for a personal loan from any reputed financial institution whenever you need extra funds. 

However, several charges are attached to this loan product. Before you avail of the loan, you must understand the actual cost you might have to bear. This will ensure a smooth loan settlement process. The significant charges associated with any personal loan are as follows:

Interest charges

Since personal loans need no collateral, personal loan interest rates are steep. You can repay the principal, and the interest amount in EMIs staggered over the repayment tenure. Your credit score, job profile, and other factors determine the interest rate. However, the rates differ with every lender. Complete clarity on the interest rate will enable you to calculate the total amount you will have to repay.

Processing fees

During the approval process, your lender sustains some administrative expenses. They recover such costs with processing fees that will be a nominal percentage of your principal amount. It is usually non-refundable whether the loan application is approved or not. Hence, determine your personal loan eligibility before making an application to ensure approval. 

Penalties on late payment/EMI default

A missed EMI or failure to pay within the stipulated due date will attract hefty interests on the overdue amount. Moreover, your creditor will levy a penalty if your EMI cheques bounce due to inadequate funds in your bank account. Such defaults will lower your credit score as well. 

Always check if you can afford the EMIs before opting for a loan. You can use an online personal loan calculator to estimate your EMI outgo and plan your repayment schedule in line with your resources. 

Foreclosure and prepayment charges

You may wish to pay off your loan early to cut the total loan outlay. However, your lender will lose out on interest income due to the reduced tenure. As compensation, you may be required to pay foreclosure charges whether you repay the loan in part or full before the agreed tenure. 

Some lenders though do not impose foreclosure charges on loans with floating interest rates. Some even allow prepayment of a fixed part of the loan amount without levying any charges.

Loan cancellation cost

If you cancel the loan after disbursal, you will have to reimburse the lender with cancellation charges. 

Miscellaneous charges

  • Repayment mode change fees
  • Duplicate document charges
  • Annual maintenance cost


Compare offers from several lenders and understand every charge involved before signing any agreement. Tata Capital offers personal loans with flexible EMI schemes. With Tata Capital, you can even start with lower EMIs and increase the amount as your income grows. This facility enables you to avoid defaults or prepayment charges. You can apply for personal loan online and save a considerable sum on your total loan cost.

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