What Is Processing Fee For Personal Loan?

Personal loans are excellent financial tools for borrowers who need quick money. These loans are typically unsecured, meaning there is no need for the borrower to pledge an asset as collateral with the lender. Personal loans are granted in a short time and the money can be used for any purpose as there are no end-use restrictions.

However, most banks and non-banking finance companies (NBFCs) loan providers impose certain fees and charges like document verification charges, foreclosure charges, Goods and Service Tax, etc. on a personal loan. Lenders also impose certain administrative charges, known as a processing fee.

A processing fee is a predetermined amount charged by a lender for the administrative costs incurred at the time of processing and sanctioning a loan. These are one-time costs and include expenses incurred in running a credit check, handling documents, conducting all legal formalities, etc.

Sometimes the lender may contact a third party for cross-verification. All these add up to the costs and are charged as the processing fees. Some lenders may split the total processing fees into two parts. First, the login fee which is to be paid upfront and second, the balance payable during the loan disbursement.

How Much Processing Fees Can Be Charged?

Usually, the lender fixes a certain percentage or a fixed amount as the processing fees. Both the procedure and the amount of processing fees on a personal loan vary from lender to lender. While some banks may ask for the processing fees upfront before the loan is sanctioned, others deduct it from the total loan amount before disbursal. The latter is mostly common with online lending.

In the absence of specific regulations guiding lenders on how much to charge as processing fees, mostly it is an estimate of the total costs incurred. Typically, the fees range between 0.5% and 2.5% of the overall loan amount. The processing fees for online lenders, who mainly specialize in small loans, is higher than conventional lending.

With the exception of a few banks, which have capped the processing fees amount, every bank sets a minimum and maximum percentage of the loan processing fees that every borrower must pay. The charges in public-sector banks are comparatively lesser than private-sector lenders.

The fee is also based on many other factors like credit profile and loan amount, and accordingly, it may vary from customer to customer. Banks may waive the processing fees for borrowers with excellent credit profiles. Some lenders waive the processing fees partially or completely during festive offers to attract customers.

Are Processing Fees Refundable?

The processing fees are non-refundable. Although some banks assure to return the processing fees in case a loan application faces rejection, it is always the borrower who has to bear the associated costs.

Conclusion

Apart from the interest on the principal amount, a borrower has to pay a few other charges like the processing fees on a personal loan.

Knowing different types of fees helps to check affordability and have a fair estimate of the total amount to be paid to the lender. Borrowers should also compare the fees across banks and NBFCs before selecting a lender.