Personal Loan for Home Improvement: Fees and charges decoded

Processing fees:

Lenders charge a processing fee on yourhome improvement loan to cover the cost of processing your application as well as the administrative costs associated with verifying your information. Typically, this charge is around 2%–3% of the total loan amount. Most lenders subtract this amount from your total loan amount before depositing it into your bank account.

Penal interest:

If you fail to pay, or delay paying an instalment, lenders will charge you additional interest, known as penal interest. This is over and above the interest that you are paying on the principal amount. Generally, lenders charge around2.38% per month, inclusive of taxes.

EMI bounce charges:

If an EMI cheque bounces due to insufficient funds in your account, you will have to pay a fee. Most lenders charge you around Rs.1,200 per bounce as a penalty.

Secure fee:

When you are applying for a home renovation loan online, you can also monitor your loan and make requests via a secure customer portal using your unique ID. To help the lender maintain this online system and keep your confidential information safe from cyber threats, you have to pay a secure fee. Lenders charge you around Rs.4,499 as a secure fee.

Foreclosure charges:

If you repay your loan before completion of the tenor, lenders will charge you a fee for facilitating foreclosure. Typically, this is around4% plus taxes on the outstanding principal balance. Look for a loan with low foreclosure charges so that you can make the most of your surplus funds.

Additional Read: Personal Loan for Home Renovation: Everything you need to know

Prepayment charges:

In case you want to prepay a part of your loan, lenders will levy a charge to facilitate this. Usually, they charge around 2% plus taxes. Again, look for a loan where these charges are low if you foresee being able to make part-prepayments frequently.

Annual maintenance charges:

Some lenders also charge annual maintenance charges for the services they offer you through the year. This is usually around 0.25% of the principal amount.

So, before you apply for a home improvement loan, take a momentto note the fees and charges. This way, you will be able to judge the true affordability of the loan and plan for the payment of these charges if need be.