Understanding Processing Fees & Charges for Personal Loans

15 May, 2025

Synopsis:

• Personal Loans are versatile financial tools that can be used for various purposes without restrictions.

• Banks charge Personal Loan charges like processing charges, verification costs, and penalties for prepayment or EMI defaults.

• Loan processing charges on Personal Loan range from 0.5% to 2.5% of the loan amount and vary across banks.
  
  

A Personal Loan helps you achieve several of your life’s dreams and goals. These loans can be taken for innumerable reasons; whether you wish to fund your dream wedding or take off on an international trip, whether you wish to buy a consumer durable or to pay off Credit Card debt. There is also no limitation to how you can use the funds. Since it is an unsecured loan i.e. you are not required to provide any collateral against your loan, your bank levies certain fees and charges on this loan. Here are some charges you incur on a Personal Loan.

Loan processing charges: The bank has to bear some administrative costs while processing and sanctioning your loan. This is usually a small amount, which varies from bank to bank and typically costs about 0.5% to 2.50% of the total amount of the loan. Every bank fixes a minimum and maximum percentage of the loan processing fees, which the borrower must pay. You can either choose to pay this fee upfront or have it deducted from the loan amount when it is disbursed.

Verification charges: Before a bank can sanction your loan, they need to have assurance that you have the capacity to repay the loan. To this effect, they hire an external agency to get your credentials verified. They check your credit scores and your loan repayment patterns. Since this is an added cost that affects the bank, the accrued cost must be borne by the borrower. This cost is regarded as a verification charge.

Penalty on EMI defaults: Banks allow you to repay the loan in small amounts through equated monthly instalments or EMIs. As a borrower, it is your responsibility to ensure that you have adequate funds to pay your EMIs on time. Failure to do so may result in you having to incur a penalty. This is why it is important to opt for an EMI amount you can afford, instead of trying to rush in paying off the loan.

GST Tax: If the customer requires any additional service during the loan sanction or repayment period, he/she must also bear a small fee in the form of GST tax.

Duplicate statement fees: In case you require a duplicate statement of your payment schedule or you have lost track of the balance of the outstanding loan amount at any time, you can approach your bank for the same. Your bank can provide you these details by charging a small fee.

Prepayment/Foreclosure penalty: Banks recover their money from the interest you pay on the Loan. If you pay off your debt before the stipulated tenure, your bank may incur a loss, with you discontinuing your loan before the set tenure. To make up for this loss, your bank may charge you a prepayment penalty. Typically, a bank will charge a small prepayment/foreclosure fee of 2-4%.

Even with these charges, a Personal Loan makes a great financial assistance when you need it. Know how a Personal Loan can be your saviour in the right situation.

Apply for HDFC Bank Personal Loan Online ​​​​​​​

FAQs

How much are the Personal Loan fees and charges?

The processing fee for Personal Loans in India typically ranges between 0.5% and 3% of the loan amount. The exact percentage varies depending on the lender, your profile, and the loan amount. Some banks and NBFCs (Non-Banking Financial Companies) may charge a minimum fee (e.g., ₹1,000–₹5,000), irrespective of the loan size. GST at 18% is also added to the processing fee, further increasing the cost.

How is the processing fee calculated?

The processing fee is calculated as a percentage of the approved loan amount. For example, if a lender charges a 2% processing fee on a ₹5,00,000 loan, the fee is ₹10,000 (2% of ₹5,00,000). Additionally, GST at 18% will be applied to this amount, making the total processing fee ₹11,800 (₹10,000 + ₹1,800). Some lenders may offer discounts or waive the fee as part of promotional offers, but this depends on the institution's policies and your creditworthiness.

How much does it cost to process a loan?

The actual cost of processing a loan varies depending on factors like the lender’s policies, the complexity of the loan application, and associated services like credit checks or document verification. While the processing fee charged to you is often meant to cover these costs, it also contributes to the lender’s revenue. For you, the Personal Loan fees is a one-time, non-refundable cost paid upfront or deducted from the disbursed loan amount.

* Terms & conditions apply. Personal Loan disbursal at sole discretion of HDFC Bank Ltd.