Low Processing Fees on Personal Loans: Higher Value, no hidden costs & Complete Transparency

When it comes to savings on a loan, most people focus on the interest rate. But the reality is, the interest rate is a part of a bigger picture. As you dig deep, you will find various charges adding to the loan cost. Processing fee is one of them. It is an upfront cost charged as a percentage of the loan amount plus the GST. Some lenders occasionally lay out offers to waive the fee. Learn how you can qualify for this privilege in this handy guide.               

What are the processing fees on a personal loan? 

A processing fee is an upfront cost you incur for verifying your application. Lenders charge them for administrative tasks such as assessment of your eligibility, paperwork verification, loan disbursal, etc. You typically pay a nominal percentage of the loan amount as the processing fee. 

IDFC FIRST Bank, brings it down to as low as 1.5% for their FIRSTmoney personal loan for select customers. The unique feature of FIRSTmoney personal loan, is that the processing fee is not deducted from the loan amount. The fee is charged over and above the amount, so that you don’t fall short of funds.

In the case of most other lenders, the processing fee is deducted from the loan amount, and hence there is a slight reduction in the funds disbursed to your bank account. It’s important to factor in this cost while finalising the loan amount, especially for minor loans.

Ways to qualify for a low-processing-fee instant personal loan

Banks reserve the low-processing fee only for a specific set of applicants who prove their financial reliability through aspects like:

• Strong credit score

Regardless of the type of loan, lenders place special emphasis on credit score. This is because it shows them your repayment history. So, a credit score of 700-900 is appreciated with offers on processing fees.

• Stable income profile

Your income should be able to support the personal loan EMI. Hence, lenders look into the regularity of your salary/business income. They also consider the stability of your employment/business for the same. A good cash flow makes you a favourable applicant.

• Existing relationship

If you already have an account, like savings, salary, FD, loan, etc., with the bank or financial institution, they can run preliminary checks on your credit profile. Based on this, they may send you pre-approved loan offers that come with processing fee waivers and other deals.

• Low debt-to-income ratio

Showing low reliance on debt is a good sign. It means you are financially adept to manage routine expenses. So, if your existing dues are marginal compared to your income, you qualify for better loan terms.

• Right documents to verify eligibility

Your eligibility hinges on the burden of proof. You need the appropriate documents to present yourself as a creditworthy borrower. 

• Loan terms you choose

You have a fair level of control in directing how loan repayment goes. If you make a wise decision with the loan terms, like a shorter tenure, a low loan amount, etc., you can qualify for good offers. You can plan this effectively using a personal loan EMI calculator to understand your monthly outgo before applying.

Note: All these aspects combined contribute to a strong application, which helps you get your desired loan offer, including low processing fees.

Hidden fees beyond the processing fee 

Even with the processing fee waived, you still incur other charges that influence the total loan cost. They include:

• Stamping charges are levied as a standard fee based on the local state laws.
• Overdue EMIs penalty is applicable to unpaid EMIs when you miss or delay monthly repayments.
• EMI bounce charges are levied as a percentage of the outstanding amount if the EMI payment fails due to technical issues or insufficient balance.
• Foreclosure charges usually apply when you decide to repay your loan in full before the end of the tenure and are calculated as a percentage of the outstanding amount. With FIRSTMoney Personal Loans from IDFC First Bank, however, there are no foreclosure charges, so you can close your loan early without paying anything extra.

Final words

Despite being nominal, processing fees can affect the cost of the loan based on the amount you borrow. So, taking up any offer waiving the fee is a wise move. It’s worth looking for such offers when you compare lenders. Meanwhile, you also need to boost your eligibility to qualify for the waiver, as evident so far. So, make it a point to work on your application before you go ahead with the borrowing. The better your profile, the higher the chances of getting approved on good terms.