Hidden Charges in Personal Loans You Should Know About

Personal loans are advertised as fast and easy. But a lot of borrowers wind up paying more than they bargained for as a result of hidden fees that are not adequately explained when the cash is applied for. These hidden charges in personal loans often go unnoticed at first but can make a big difference in the total amount you repay. Being aware of hidden charges in personal loans before signing the agreement can help you save money and avoid unnecessary stress in the future.

1. Processing Fees

Most lenders charge an institution fee to cover their administration costs.

Typically between 1% and 3% of the amount of a loan

Often deducted before disbursal

Non-refundable even if the loan is paid off early

Always demand to know the precise amount, not just the percentage.

2. GST and Other Taxes

Here are the GST charged on andquot;We receive a lot of applications where the applicant forgets that GST is payable on:

Processing fees

Service charges

Penalty charges

Though processing fee appears small but the GST makes the cost higher.

3. Prepayment Charges

If you pay off your loan before it matures, you also might have to pay a prepayment or foreclosure fee.

May vary from 2% to 5% of the overdue amount

Usually relevant in the initial 6-12 months

Often ignored during loan discussions

Verify if prepayment comes with a charge and also if it is partial.

4. Late Payment Penalties

Missing an EMI can lead to:

Late payment fees

Additional interest

Credit score damage

A few lenders apply penalties on a per-day basis, not per month.

5. Loan Cancellation Charges

Even if you cancel the loan after approval, but before complete disbursement, a lender might still be able to charge:

Processing fees

Cancellation charges

This is a surprise to many first-time borrowers.

6. Insurance Charges (Often Optional)

Loan insurance is often automatically included.

Credit life insurance

EMI protection plans

These are not usually required, but they are given such an importance. Always ask before agreeing.

7. Documentation and Miscellaneous Charges

Some lenders charge extra for:

Physical document handling

Statement requests

Address or profile verification

Those amounts can add up to real money over time.

How to Avoid Hidden Fees

Ask for a written loan offer

Ask for a breakdown of all fees

Read the loan agreement carefully

Compare offers from multiple lenders

Don’t be hurried by “limited-time offers”

Final Thoughts

A personal loan is intended to help fulfill a financial need, not introduce more problems. The more you know about hidden fees, the better decision you can make, and there won’t be any unwanted surprises ahead.