03 Mar 2014

Rupeepower Editorial Team

Personal Loan Processing Fees

If you thought that interest rates are the only charges on your loan, then make sure you carefully read this article.

Personal Loan Processing Fees

Personal loan processing fees vary between 1-2% on your personal loan amount. Some times the bank’s have flat rate processing fees or maximum caps on the processing fees being charged to you. Processing fees are in addition to the interest you pay on your personal loan. Processing fees are usually explicitly states with your interest rate. If not stated, make sure that you check the processing fees by asking the lending representative or reading loan documents carefully.

Given personal loans are short duration loans, the processing fees makes a significant impact on the cost of loan.  Make sure that you factor these in while considering various costs.

Why do I need to Pay Processing Fees?

An obvious question to ask is “Why Do I Need to Pay Processing Fees When I am Paying Interest Rate”? Our understanding is that it is just another way for the lending institutions to make money. Processing fees would make sense only if all loan applicants had to pay these. Processing cost is the same for a successful as well as an unsuccessful loan applicant. An unsuccessful loan applicant does not have to pay these so there is no reason to charge a successful one. Moreover, charging processing fees as a percentage on the loan amount is ambiguous given the cost of processing an application is the same irrespective of the loan amount. Hence, it is safe to assume that it is just another way for the banks to charge fees.

When Do I Need to Pay Processing Fees?

Processing fees only have to be paid when your loan gets disbursed. Hence, if your loan gets rejected or you decide to not borrow from the bank even after you loan is approved, you do not have to pay processing fees. Processing fees comes deducted from your loan amount. So, you do not have to separately pay for it. Make sure that you borrow slightly more than you need given processing fees is deducted from your loan amount.

How to Get a Low Processing Fees

Banks often run schemes reducing their processing fees. You can find these by comparing personal loans from multiple banks. Besides checking for banks offered low processing fees, you can get a bargain on the processing fees. But, you can only bargain if you happen to have leverage. In other words, asking for a reduction in processing fees only works if you are borrowing a large amount for personal loan (for example: over 5-10 Lacs). You should also have a very good credit rating. A bank representative will probably work to slash your processing fees if they know your loan will get approved without any problem. But, such favors only happen if your loan value is high for the representative to work for it.

 

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