Does the EMI rate in your personal loan app seem fixed? Maybe you need to take a closer look as their might be some charges added which you may not be aware of. Although getting a low interest rate is possible if your CIBIL score is above 700 and depending on some other factors, sometimes the actual amount that ends up in your bank account every month is surprisingly high.
The real issue isn’t the one-off processing fees; it’s the recurring hidden costs. Before you digitally sign for your personal loan agreement, make sure you understand these five hidden charges prior to applying.
5 Hidden Costs That Drive Up Your EMI of Loans
Although the headline interest rate is the one that attracts your attention, it is in fact seldom the figure actually used to calculate your monthly payments. Many online lenders include complex structural fees in your payment plan, secretly disrupting your monthly budget.
1. Capitalised Loan Insurance Premiums:
- Most apps include ‘loan protection insurance’ as part of your plan.
- Rather than charging you upfront, they add the full premium to the principal amount of your main loan.
- As a result, you end up paying interest on a larger balance, which in turn causes your monthly EMI to rise.
2. Daily Overdue Penalties Added to the Principal:
- If you miss a deadline, substantial late fees are imposed, usually ranging from 2% to 3% per month and charged daily.
- The apps add the unpaid late fees back into the amount you still owe.
- The loan repayment plan will recalculate, and your next monthly EMIs will increase as a result.
3. Broken Period Interest (Pre-EMI Charges):
- A gap arises when the loan is released mid-month, but the EMI payment cycle begins on the first.
- Lenders charge interest for these intermediate days, known as broken period interest.
- The extra cost is included in your usual EMIs rather than being collected at the beginning.
4. Check for Auto-Debit (NACH) Mandate Charges:
- Check your loan agreement to see whether there are any hidden fees for setting up or maintaining your automated monthly e-mandate.
- Some platforms impose a processing fee when an auto-debit is returned because of network problems rather than insufficient funds.
- Make sure these automated platform maintenance charges aren’t added proportionally to your principal balance each month.
5. One-Time Processing Fees and 18% GST:
- Though these are one-time fees, lenders charge a processing fee; they add 1% to 4%, plus 18% GST applied to that fee, though it’s not a hidden cost many don’t notice.
- The effect of EMI is that, since the fee and GST are included in the principal amount, your loan amount increases. You therefore pay monthly interest on the taxes and fees, which raises your fixed monthly EMI.
How Can You Verify Your Accurate EMI Before Signing For a Personal Loan?
To uncover these hidden charges, you need to look beyond the promotional banners that appear just before you decide. If you use standard legal disclosures and verification methods, you will be able to detect hidden costs before they impact your bank account.
Ask for the Key Fact Statement (KFS):
- The Reserve Bank of India (RBI) requires that all digital lenders provide a KFS prior to a contract being signed.
- This document cuts through marketing fluff by showing your exact Annual Percentage Rate (APR) and the exact amount deducted each month.
Check the principal amount:
- Examine the actual final principal figure on which the interest is calculated.
- If this amount is greater than the cash amount you requested, investigate whether there are any hidden insurance premiums or bundled technology fees.
Look over the Amortisation Table:
- Review the monthly repayment schedule and make sure the monthly payment matches your expectations and stays unchanged throughout the loan term.
To Sum Up
Convenience and your financial health should go hand in hand, but some charges when it comes to loans can show up as a surprise much later when it’s time to pay your monthly EMIs. There are some ways, like reading through your key facts statement or the amortisation table, to help you understand what the actual amount is that you are supposed to pay monthly.
But the first step is to choose the platform which are transparent with the costs before you even sign your personal loan agreement, brands like Bajaj Finserv App is one of the most trusted names in the fintech market, offering loans even for people of CIBIL of 650 points.
