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How to Avoid Hidden Charges While Getting Personal Loan

Published on May 20, 2022Updated on Sept 29, 2023

How to Avoid Hidden Charges While Getting Personal Loan

A personal loan is one of the most popular and easily available loan types in the market. It offers greater flexibility to borrowers and there is no end-usage restriction on the loan amount, which makes it a go-to financing option for millions of Indians. 

However, being an unsecured form of credit option, lenders require you to meet multiple eligibility criteria and agree to their terms and charges before approving the loan amount. In certain cases, there may be hidden charges involved, which can turn into bigger expenditures over a period. 

In this blog, we will discuss several forms of hidden charges on loans and ways to avoid hidden charges on personal loans.

Top Hidden Charges on Personal Loan:

  • Late Payment Penalty: As the name suggests, a late payment penalty is levied when the borrower doesn’t pay their EMI due on time or defaults on their EMI payment. In such a case, the lender charges a late payment penalty from the borrower, which usually ranges between 2-3% of the EMI amount plus GST. 
  • Pre-payment Charges: Usually when borrowers have some extra cash in hand, they want to use the money to fully or partly prepay the loan amount to reduce the EMI and interest burden. However, some lenders don’t allow pre-payment of the outstanding loan amount before a certain period. And, if you want to make the pre-payment and close the loan account earlier, some lenders impose a prepayment penalty. In SMFG India Credit, part prepayment for personal loans is not allowed. If borrowers wish to prepay their loan, they must be able to do so in full. This option is allowed only after a certain number of EMIs have been paid, and there have been no delays/late payment charges applied. Depending on the number of EMIs already paid, prepayment or foreclosure charges vary between 0%-7% of the outstanding loan amount.  
  • Processing Fees: The processing fee is the charge levied by the lender to cover the costs related to approving the personal loan and its disbursal. It is a common charge, and the amount is a fixed percentage of the personal loan amount, which is intimated to the borrower before making the personal loan application. However, few lenders also add up extra charges like service charges, which add up to the total cost of availing of a personal loan. 
  • Balance Transfer Cost: Balance transfer is the way to transfer your outstanding personal loan amount from your existing lender to a new lender at more favorable terms. Since it is comparable to making a prepayment, your existing lender may impose a certain penalty to transfer your loan account to a new lender and provide a no-due certificate. 
  • EMI-Bounce Charges: EMI-bounce is a situation, when you default on your EMI due to an insufficient balance in your bank savings account, intentionally or unintentionally. In most cases, the borrower will be charged between Rs 600 to Rs 1200 plus GST per bounce. 

Ways to Avoid Hidden Charges on Personal Loan

Now you know the various types of hidden charges on personal loans that lenders levy, here’s how you can avoid them and save your money. 

Read the Loan Document Carefully

While availing of a personal loan, always read the loan documents carefully before signing the terms and conditions. The loan document lists all the types of charges the lender can levy and under what circumstances. 

In the loan document, check the personal loan interest rate you’ve agreed upon, repayment tenure, repayment mode, and repayment terms and conditions. 

You should not skip this process and take time to read the fine prints before you sign the loan document. Not reading the loan agreement is one of the most common mistakes made by personal loan borrowers, which makes them feel burdened later once the EMI schedule begins. 

Plan your Repayments

Always plan your personal loan repayments as per your repayment capacity to avoid defaulting on EMIs and late payment penalties.

Use the personal loan calculator to check the right repayment tenure and EMI amount for yourself before applying for the personal loan. Read the loan schedule thoroughly. If possible, always sign up for the auto-debit / ECS facility which will allow the lender to directly debit the EMI amount from your account on a particular date. Always ensure that the account provided for this purpose has sufficient balance. Not only will it help you to avoid the penalties, but it will also keep your finances in shape.

Avail of a Personal Loan from a Reputed Lender

With the advent of new-age fintech platforms, access to online personal loans has become easier. By meeting all the eligibility criteria and uploading the digital format of documents required for personal loan, one can get funds credited to their bank account within a day or two. This happens only if the application meets the lender’s required criteria, the documents pass all verification checks successfully, and the loan gets final approval. 

However, you need to be cautious, as most online lenders have very stringent terms and conditions and include various types of hidden charges. 

Therefore, it is best to avail of a personal loan from a reputed lender like SMFG India Credit  to keep yourself away from all such troubles. 

Stay Aware of Different Fee Types

Last, but not least, you should be aware of the different charges and fee types usually involved in a personal loan. Knowing beforehand can help you to plan your repayments in a better way and can avoid any such situation that can result in payment of such hidden charges. 


Just by exercising a bit of caution and performing due diligence while signing the personal loan offer documents, you can avoid the hidden charges.

* 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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