Facts About the Loan Processing Fee That You May Not Know
Last Updated : Feb. 12, 2020, 12:46 p.m.
The term Processing Fee is very common in the world of loans. It is a fee that lenders charge to process the loan application. Lenders look to make the most by launching attractive processing fee offers. Some come with a full waiver, others provide a partial waiver of the fee. Many applicants do not know the intricacies of the loan processing fee and thus get misguided. And, it is also possible that bank executives will not detail you on the same. So, if you want to make responsible financial decisions, you must have complete knowledge of the processing fee. To help you gain the knowledge, the article has come with the necessary information.
How Does the Processing Fee Work on a Personal Loan?
When you apply for a personal loan , the processing fee applicable will be deducted from the loan amount you apply. The amount so arrived will be disbursed as a loan. However, the interest rate will apply to the amount you apply for. Let’s understand it through an example.
Example – Sheetal Bansal applied for a 5-year personal loan worth ₹5 lakh at an interest rate of 15% per annum. If a 2% processing fee is levied, the bank will debit ₹10,000 plus 18% Goods and Services Tax (GST), amounting to ₹11,800, from ₹5 lakh. If you calculate, it will be ₹4,88,200. Now that amount will be disbursed to Sheetal. But she will have to service the entire ₹5 lakh loan at the given rate of interest. This will lead to an EMI of ₹11,895 and interest outgo of ₹2,13,698 over 5 years.
However, if Sheetal is made to service interest on ₹4,88,200, the EMI would have come down to ₹11,614. The interest repayment would have fallen to ₹2,08,655, ₹5,043 less than the earlier one.
Keeping that in mind, it will be worth applying at a lender that provides the loan at less or zero processing fee.
Lenders That Provide Personal Loans at Less or Zero Processing Fee
| Lenders | Processing Fee | Interest Rate | Quantum of Loan |
|---|---|---|---|
| Standard Chartered Bank | NIL | 11.49% Onwards | Upto ₹50 lakh |
| State Bank of India (SBI) | Upto 1% of the loan amount | 11.00% - 14.00% | Upto ₹15 lakh |
| HDFC Bank | 0.99%-2.50% of the loan amount, with the lowest fee being ₹1,999 | 10.75% - 14.50% | Upto ₹25 lakh |
| Tata Capital | ₹999 - 2.50% of the loan amount | 10.50% - 24.00% | Upto ₹25 lakh |
| Kotak Mahindra Bank | 0.99%-2.50% of the loan amount | 10.99% Onwards | Upto ₹20 lakh |
| Fullerton India | 2% of the loan amount | 11.99% Onwards | Upto ₹30 lakh |
Will It be the Same for Home Loan & Loan Against Property?
No, the dynamics change here. Banks will ask for processing fee cheque in the very beginning. The processing fee will also include the legal & technical fee, credit appraisal charges, etc. But that also depends from lender to lender. Some lenders keep all such fees & charges separate from the processing fee.
Lenders That Offer Less Processing Fee on Home Loans
| Lenders | Processing Fee | Interest Rate | Quantum of Loan |
|---|---|---|---|
| SBI | 0.40% of the loan amount, with the minimum being ₹10,000 | 9.15% - 11.30% | 75%-90% of the property cost |
| HDFC Limited | Upto 0.50% of the loan amount or ₹3,000, whichever is higher | 8.50% - 9.40% | 75%-90% of the property cost |
| PNB Housing Finance Limited | ₹10,000 | 8.50% - 9.40% | 75%-90% of the market value of the property |
| Piramal Housing Finance | 0.10%-0.25% of the loan amount | 10.50% Onwards | Upto 90% of the property cost including the cost of land |
| Tata Capital | 0.50% of the loan amount | 8.95% - 12.00% | Upto 80% of the market value of the property |
| Bank of Baroda | Upto 0.50% of the loan amount, subject to a maximum of ₹7,500 | 8.50% - 10.60% | Upto 10 Crores |
Lenders That Charge Less Processing Fee on Loan Against Property
| Lenders | Processing Fee | Interest Rate | Quantum of Loan |
|---|---|---|---|
| SBI | 1% of the loan amount, subject to a maximum of ₹50,000 | 7.00% - 7.70% | Upto 60%-65% of the property value |
| HDFC Limited | Upto 1% of the loan amount | 8.75% - 10.40% | Upto 65% of the market value of the property |
| ICICI Bank | 1% of the loan amount | 8.35% - 9.50% | Upto 70% of the property value |
| Indiabulls | Upto 1.50% of the loan amount | 8.35% - 9.50% | Upto 65% of the market value of the property |
| PNB Housing Finance Limited | Upto 2% of the loan amount | 7.99% - 10.50% | Upto 60% of the market value of the property |
Note – The processing fee you see across each of the loans will also carry an 18% GST.