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September 6, 2019
Personal Loan is a convenient option for securing funds at the time of an emergency or for fulfilling a Personal need. Popular reasons are for Weddings home renovation, for travel, education, medical expenses & shortfalls in an emergency situation.
As a Personal Loan is quick & easy to secure, it is fast becoming a popular source of funds for the salaried & self employed to fulfill needs for urgent financial requirements. For lenders it offers a quick turnaround for interest on finance issued for tenures of 12 to 60 months.
Before Applying for a Personal Loan it is important to know all the charges applicable & other costs that may be incurred during the course of repayment of the Loan.
No charges need to be paid upfront for a Personal Loan processing from any Bank or NBFC: the major charges that will affect your Personal costs are:
The Rate of Interest or (ROI) as is popularly known is the cost at which the funds are forwarded. The rate of Interest for a Personal Loan ranges from 11.29% up to 22% per annum.
It is charged @ monthly reducing balance which means that every installment paid to the Bank has a component of the interest & principal loan amount. The rate of interest for Personal Loans remains fixed for the entire tenure.
The rates of interest of a Personal Loan for which an applicant can shop around for vary from Bank to Bank as per the profile of the applicant, the monthly income & credit record.
The processing fees are the charges applicable by the Bank/NBFC for assessing the loan request, completing the verification & the underwriting requirements. The fees charged can be nil or up to 2.5% *of the Loan amount: which varies as per the policy of the Lender. It is a variable charge & discounts are given to account holders, applicants with a previous relationship, High income customers & applicants for increased loan amounts. For loan amount of 10 lakhs & above a maximum standard amount is applicable as a processing fee.
Fees for a Personal Loan are usually deducted from the loan amount where as in a mortgage an upfront fee is charged for legal formalities. The processing fee is non refundable post disbursal of the loan.
With the fast paced lifestyle of today, the need to cover all eventualities to be covered is fast becoming necessary. All Personal Loan lenders offer the applicant the choice of an insurance cover for repayment of their Personal Loan. It is not mandatory to take insurance for a Personal Loan.
As per the terms of the insurance policy the applicant will be covered for inability to pay for an interim period due to loss of job or medical emergency. In case of unforeseen circumstances when the applicant is not able to repay the loan amount borrowed, the insurance will take over.
The amount charged is generally 750/- *per lakhs. This amount can be taken upfront or can be embedded into the EMI.
A part payment or pre closure facility refers to the option to partially pay back or return the complete amount borrowed. This option is available to the applicant as per the rules & regulations of the Lending authority. Some organisations allow a foreclosure or part payment whenever there are extra funds at hand while others have a stipulated frame or a lock in period: this period could vary from 6 months to a year, the applicant has to pay 6 to 12 EMI’s before the Loan can be paid back.
Financers also differ in the fee to be applied for on the amount paid toward the loan from nil surcharges to 5%* of the amount. The fee to be paid on the principal balance of the Loan amount reduces with the increase in the loan amount paid back.
Before taking the Loan it is important to be aware of the policy for Part payment & for closure of the Personal Loan if the applicant intends to pay back the Loan prior to expiry of the full tenure.
If the need for the loan amount is fulfilled from an alternate source or the demand for the loan no longer exists or there has been a simple change of plans: if a Personal Loan is at the approval stage the applicant is allowed to cancel the request or take a lesser loan amount. But once the agreement is signed the loan amount will be transferred to the applicant’s Bank account electronically.
The applicant now wanting to return the funds will have to request for a cancellation of the loan.
The cost of the processing fees will have to be borne by the applicant with the charges applicable for the cancellation of the loan. Cancellation charges include a standard fee of 3000/-* & the interest for the number days after which the applicant has returned the funds.
The EMI or the installment for a Personal Loan borrowed will be electronically debited from the salary account on a designated date. Some Banks do issue an alert before the EMI date but it is the responsibility of the borrower to keep enough balance in the account to clear the installment: if there is a scarcity of funds & the EMI bounces the lender can be requested to represent the EMI.
In any case charges are applied for the return of each installment which can be from ₹ 50/-* to ₹ 500/-*, in addition extra interest will be charged for the number of days for which the amount remains unpaid. The interest charged is heavy @ 24% per annum.
In the event of a change of salary account with a change in employment, it is imperative that the applicant keeps a balance in the account or informs the Lending organisation & requests that the repayment mode be swapped. The repayment mode should be swapped prior to closing of the original account as under no circumstance should the EMI be returned as unpaid. It will show as a bounce in the track record whatever the reason for non payment may be. Charges for a swap of the repayment mode are 500/- * per transaction.
All documents giving details of the terms & conditions under which the Personal Loan is disbursed should be kept handy for future requirements. In case of non receipt of original documents pertaining to the Personal Loan the applicant should maintain a follow up with customer care. The requirement for the schedule of the personal loan, amortization & statement is bound to arise, for which the applicant can apply to the Bank charges for issuance of statement or a duplicate of any document is 500/- * per document.
As per the Tax department the current tax or GST applicable on all loan related services is levied @ 18%. These include processing fee, prepayment and part-payment charges, repayment mode swap charges, cancellation charges, missed repayment charges, duplicate statement issuance charges, etc. Other charges are the stamp duty & legal charges that can vary as per the lender norms.
It is essential to have the knowledge & awareness of all the charges that are applicable for a Personal from the time of Disbursal, through different phases up to the completion of the tenure. This will keep the consumer ahead to maximise savings & not have to bear expenses that are easily avoidable.
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