What charges are associated with a Personal Loan

a Personal Loan


All of us know that a personal loan is an unsecured loan. It means you do not need to provide valuable assets or collateral to avail the personal loan. As collateral is not involved, the bank or lender imposes some charges on the personal loan amount.

Today, banks provide instant personal loans without a lot of documentation or paperwork by the applicant. Here is a short overview. To gain complete information about personal loans and their associated charges, you must read the complete article.

What is a personal loan?

A personal loan is an instant unsecured loan that you can take from any bank or lender. There is no need to submit any collateral to acquire this loan. The applicant can use the personal loan however they want.

The repayment of personal loans is done in EMI, that is spread across loan tenure. Fixed interest rates are imposed on the amount of a personal loan.

Charges levied on personal loans:

Along with the personal loan interest rate, different charges are associated with a personal loan. You should be aware of such charges if you want a personal loan.

Loan processing charge

When your loan application is processed by the bank, there are small charges levied on it as administration expenses.

Loan processing charges are levied for administration and processing by the lender. Usually, the amount of this charge is minimal. The loan processing charges range between 0.5% to 2.5% of the total loan amount.

Verification charge

When you get a personal loan from a bank, the bank must ensure that you will repay the loan amount on time, according to loan conditions.

The bank hires a third party to check your repayment history and credit score. The charges paid to the third party by the bank is levied on the customer as verification charge.

Penalty on default 

The banks allow you to pay the loan amount in EMI. The EMI is decided based on loan tenure, loan amount and interest rates. Sometimes, the borrower decides to repay the loan in a short period.

If the borrower cannot repay the loan amount in a certain time, then the lender will levy a penalty on the loan amount. This charge is known as a penalty on default.

 Prepayment penalty 

Sometimes the borrower decides to repay the loan amount before the loan tenure. In this case, they choose foreclosure of the personal loan. But banks do not prefer this practice because they lose the way to gain interest from your income if you repay the loan earlier.

So, the banks levy a foreclosure charge that ranges between 2% to 4% of the personal loan amount. These charges are also based on the stage at which you decide to repay the loan.


Personal loans are provided as lump sum amounts. Lenders or banks do not define the uses of a payment loan. The applicant can use the personal loan as they want. You should know all the above charges levied on a personal loan.

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