Though most of the comparison among loans is made based on rate of interest and EMI. But actually, hidden charges mean that there is another level of intricacy that would definitely create a dent in the total cost of the loan once you borrow it. Familiarizing yourself with these costs will help you make better financial choice and avoid some unpleasant surprises later on. A few insights are shared.
1. Processing Fees
Processing fees, which are a non-refundable charge by lenders while processing your loan application, are the most common hidden charges. Usually, this charge varies from 0.5% to 2% of the entire loan. Always remember to ask about this fee and whether it is being included as part of your loan offer.
2. Prepayment and Foreclosure Charges
If you plan on repaying your loan early, then be ready for the prepayment or foreclosure charges. Although prepayment fees do not exist for floating interest rate home loans, others may incur a percentage amount on the outstanding amount.
3. Late Payment Penalties
Missing an EMI payment can attract significant penalties. The late payment fee usually varies between 1% and 2% of the amount. Such charges may mount quickly and impact your credit score.
4. GST and Other Taxes
Goods and Services Tax (GST) is applicable on various loan-related services, including processing fees and legal charges. Although not hidden, most borrowers tend to ignore these additional costs.
This may include charges made by lenders for legal or paperwork simplification to cover costs involved in confirming and processing the loan documents. These are often hidden, so always ask for a detailed account of all expenses before signing.
5. Insurance Charges
Some lenders include the cost of insurance when lending money for a home or car loan. While this does insure a loan, the cost usually gets included in the loan amount, thus further increasing the burden of repayment.
6. Conversion Fees
In case the conversion be made in a borrowing loan interest rate from floating to fixed or vice versa, lenders charge a conversion fee for that process. This conversion fee may be either a flat rate or a percentage of the outstanding amount.
7. Verification and Valuation Fees
Secured loans such as loans against property may attract some fees for property verification and valuation. These fees are usually charged at the later stages of the loan processing.
8. Cheque Bounce Charges
If the lender does not receive the monthly payment due to insufficient funds, the borrower is usually charged a cheque bounce fee. Charges of late penalties and bounced cheques can create a psychological burden on anyone.
9. Loan Cancellation Charges
If you wish to cancel a loan after it has already been approved but before disbursement, lenders charge a cancellation charge depending upon their own internal operating procedures, and the amount may include processing charges.
Tips to Avoid Hidden Charges
- Read the Fine Print: This includes studying the original loan agreement, including terms and conditions.
- Ask for Transparency: Always ask the lender to clarify all of the termination fees and charges.
- Compare Lenders: This means comparing the interest rate, inclusive of expenses, to make an informed decision.
- Keep Your Credit Score Up: It is mostly upon the loan-seeking individuals that most lenders have been known to waive off hidden fees.
Conclusion
The hidden charges might inflate the loan price considerably. It is reasonable to understand the fee associated with the loan so that you know exactly what you are getting yourself into. Gathering information and asking the right questions can keep you away from any hidden charges, making your smart financial choices. Remember, an informed borrower is a smart borrower!