A personal loan is a major financial decision and it should be considered carefully. One of the essential aspects of a personal loan is its associated personal loan fees and charges. By understanding personal loan fees and charges, borrowers can calculate the true cost of their loan, and personal loan tax benefit enables them to make an informed decision about whether or not to take out the loan.
Interest rates may be the most apparent factor in calculating the cost of a personal loan, but they’re not the only consideration borrowers need to consider. Other charges, such as personal loan eligibility, personal loan tax benefit, processing fees, prepayment penalties, late payment fees, EMI bounce charges and loan cancellation charges, can add up and significantly affect the cost of a loan.
Personal Loan Fees and Charges
When taking out a personal loan, you’ll typically pay more than the borrowed amount. Fees and charges associated with a personal loan can differ significantly between lenders; thus, it’s essential to understand any personal loan fees that may apply while obtaining a personal loan.
A processing fee is an amount charged by lenders to process your loan application. It typically consists of a percentage of the loan amount deducted at disbursal. Depending on the lender and loan amount, processing fees can range anywhere up to 3.93% of the loan amount. Though this small charge may seem inconsequential, it significantly affects overall cost if you take out larger loans. Therefore, when comparing loan offers from various lenders, borrowers must factor in processing fees when calculating loan costs.
A prepayment penalty is one of the personal loan fees and charges, some lenders charge when you pay off your loan before the end of its term. This penalty usually consists of a percentage of the outstanding principal amount. Prepayment penalties exist to reimburse lenders for interest losses they would have earned if you had continued making payments throughout the full loan term.
Late Payment Fee
A late payment fee is assessed when you miss a loan payment or pay it after the due date. Depending on the lender, this can be either a fixed amount or a percentage of your outstanding balance. Missed payments can significantly increase loan costs – particularly if multiple payments are missed simultaneously. So, borrowers should always make their payments on time to avoid incurring these additional costs.
EMI Bounce Charges
Lenders charge EMI bounce charges if your fail to pay monthly EMI payment due to insufficient funds or any other reason. These fees can vary between lenders and may consist of either a fixed amount or a percentage of the EMI amount. With multiple missed payments, these costs add up quickly, so borrowers must ensure they have enough funds to cover any EMI payments due.
Loan Cancellation Charges
Lenders typically impose loan cancellation fees if borrowers decide to cancel after approval. These costs can vary from fixed amounts or percentages of the loan amount. They could significantly impact overall costs if cancellation occurs after processing fees have been deducted from the original amount owed. Therefore, borrowers should carefully consider if they wish to cancel before applying for the loan.
Personal Loan Tax Benefits
Unlike home loans or education loans, personal loans do not offer tax benefits. The interest paid on a personal loan is not eligible for a tax deduction under any section of the Income Tax Act. Therefore, when you take out a personal loan, you must account for the total interest paid during the repayment period as a personal expense.
Personal Loan Eligibility
Listed below are some of the important factors that affect your personal loan eligibility:
- Age: The minimum age requirement for personal loan eligibility is 21 years, and the maximum age limit is usually 80 years.
- Employment Status: Lenders prefer salaried or self-employed borrowers with stable incomes.
- Credit Score: A credit score measures your creditworthiness and is crucial in determining your personal loan eligibility. A higher credit score increases your chances of getting a personal loan at a lower interest rate.
- Income: Lenders look for a stable source of income before approving a personal loan. A regular income ensures that the borrower can repay the loan on time.
Take out a personal loan as an easy way to finance various expenses. However, borrowers must understand all personal loan fees and charges associated with a personal loan that includes processing fees, prepayment penalties, late payment fees, EMI bounce charges, and loan cancellation charges. By considering these personal loan fees and charges, borrowers can make an informed decision and select a loan from Bajaj Finance, which is one of the best financial institutions in India that best meets their financial needs.