An unsecured loan is the one where you are not obliged to put up any assets as security for the loan. The bank imposes specific fees and charges on this kind of loan.
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New Delhi: One of the fastest ways people look forward to raise money in times of financial emergencies is to go for a personal loan. Unlike a car loan or a home loan, you don’t have a restriction on where you spend the money. These are unsecured loans, and are more convenient because you can pay them back over time in affordable installments, and you can receive speedy disbursement with little to no documentation.
What is an Unsecured Loan?
An unsecured loan is the one where you are not obliged to put up any assets as security for the loan. The bank imposes specific fees and charges on this kind of loan. The fees and charges differ depending on the bank and interest rate may differ depending on the credit score.
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Loan Processing Charges
The minimum and maximum percentage of the loan processing fee levied on a borrower will be determined by the bank. Some cost related to administration will be borne by the bank at the time of processing of a loan. This is a little amount that usually varies between 0.5 per cent to 2.50 per cent.
Verification Charges
Before a bank sanctions you a loan, it should be confident in your ability to repay it. Usually, a third party organisation is employed to verify your credentials. The organisation will investigate your credit reports and loan payback histories.
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The cost incurred for the verification process would be levied on the borrower.
Fine on EMI defaults
Those who take a personal loan should ensure that they have enough money set aside to make timely EMI payments. If you fail to pay the EMI on time, there will be a fine imposed on you. Therefore, rather than attempting to pay off the loan quickly, choose an EMI amount that you can afford.
GST Tax
A minor fee in the form of GST tax will also be levied on the loanee against the service charges he/she would incur during the loan approval or repayment period.
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Prepayment/Foreclosure penalty
One of the ways banks make money is by the interest that you pay. Hence, if you decide to pay off your debt before the agreed-upon duration, the bank could suffer a loss. To compensate this loss, the bank may impose a prepayment penalty. Usually, banks charge up to 2-4% prepayment/foreclosure fee.
