Do I have to pay a prepayment fee for my personal loan? This question frequently crops in the minds of those who are thinking of seeking a personal loan.Borrowers often overlook the fine print in loan documents.What they do not realize is that the real cost of their personal loan is hidden right there! If a borrower intends to do some comparison shopping, it is very important for him to know the real costs that he would have to pay the lender.
Given below is a list of charges that are levied on personal loans. These charges are levied through the course of the loan and also when the borrower intends to terminate the loan.
List Of Personal Loan Charges
• Processing fee: This is the amount charged by most banks and financial institutions to cover the cost of processing the loan application. This fee can vary from bank to bank.
• Prepayment Fee: This fee is the penalty paid by the borrower for foreclosing the loan before the actual tenure is over. It is levied as a percentage of the total principal amount. Even this fee varies from bank to bank. It can be anything between 2-5 percent of the outstanding loan amount. This amount is generally levied only if the repayment amount exceeds 25 percent of the outstanding loan amount.
• Late payment charges: Whenever the borrower delays his monthly installment payment, the bank collects the next installment with late payment charges. These charges can range from 2-3 percent of the EMI.
• Check bounce charges: Whenever the borrower pays his monthly installment through a check that gets bounced due to insufficient funds, he has to pay a penalty for the dishonored check.
• Documentation charges: Financial institutions and banks levy documentation charges to cover the verification of the various documents that have been attached along with the loan application.
• Service tax: Other than all the charges mentioned above, the borrower has to pay a service tax as well.
Repayment Options
Personal loans are considered as high risk personal loans and come with several payment options. A borrower can select a repayment option starting from three to ten years.
If you are seeking an unsecured personal loan, then be prepared to pay up even higher charges towards the loan amount. This amount is meant to cover the losses that the lender might have to incur in case the borrower defaults on his payments.
Why Pay A Prepayment Fee?
You need to pay a prepayment fee only if you wish to make a lump sum payment to write off the loan. The amount is taken to make up for the loss of interest that the lender would incur due to your full and final loan payment.
However, if you do not wish to write off the loan and want to continue with the uniform monthly installments, then a prepayment fee would not be levied on your account.
Conclusion
Make sure that you carefully read the fine print in your personal loan application. Read in between the lines and clarify all your doubts with the loan officer before you sign on that dotted line. This would save you the trouble of paying any unnecessary charges later.