Published on Nov 6, 2024Updated on Jun 29, 2026
While availing of a personal loan, many borrowers focus primarily on interest rates. However, did you know that there are various potential hidden charges in personal loans that can impact the overall loan cost? Being aware of these charges is necessary to make informed financial decisions.
In this article, we will discuss the common personal loan charges, such as processing fees and prepayment penalties, that you may encounter when applying for a loan.
A personal loan is an unsecured loan, meaning you don’t have to pledge any collateral to obtain it. This feature makes personal loans a convenient and more accessible option for many borrowers. One of their biggest advantages is flexibility in using funds for a variety of purposes, whether for consolidating debt, covering wedding expenses, or financing education.
The loan approval, interest rate, and repayment terms for personal loans are typically determined by factors such as your credit score, income, and employment history. Lenders also typically evaluate your existing financial obligations or debts to assess your ability to repay the loan.
Below are the common personal loan charges you can come across when applying:
The processing fee is a one-time charge that lending institutions apply when they process your personal loan application. This fee is typically a percentage of the loan amount and can range from 0.5% to 6%, depending on the lender. For example, if you borrow INR 1,00,000, the processing fee could be anywhere from INR 500 to INR 6,000, which adds to the overall loan cost. While some lenders may waive this fee during promotions, it is usually non-refundable, even if your loan application is rejected.
If you decide to settle your loan early, either through full prepayment or foreclosure, many lenders will impose personal loan prepayment penalties. Also referred to personal loan foreclosure charges, these fees help the lender recover the interest income lost due to early repayment. The charges for prepaying or foreclosing on a loan generally depend on how many EMIs have already been paid.
Please note that some lenders may not allow partial prepayments. It is important to reach out to your lender and clarify their prepayment policies before signing the personal loan agreement.
Loan cancellation penalties apply if you decide to cancel the personal loan after it has been disbursed but before the first EMI is paid. The cancellation fee is generally around INR 1000 + GST, depending on lender policies. This charge compensates the lender for administrative costs. While it is relatively rare for borrowers to cancel their loans, it is important to be aware of this fee, particularly if your circumstances change shortly after receiving the loan.
If you wish to change your repayment method – such as switching from Electronic Clearing Service (ECS) to cheque payments or vice versa – you might incur a switching charge. This fee is typically INR 500 per transaction, including GST. Borrowers should factor this into their decision if they plan to change their repayment mode during the tenure of their personal loan.
Please note that the exact amounts of these charges may vary based on several factors, including the lender's policies at the time of the loan application.
It is crucial to understand the additional costs of personal loans to avoid any unexpected expenses during the repayment period. Be sure to carefully read all documents, ask questions, and seek professional advice if necessary.
At SMFG India Credit, we prioritise transparency by clearly mentioning all personal loan fees and charges, ensuring you are fully informed about borrowing costs before making a decision. Apply online for a personal loan of up to INR 30 lakhs* or contact us to learn more about how we provide a borrower-friendly loan experience.
* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us
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