We often hear and read about various articles about hidden charges by lenders such as processing fee, pre-payment fees, cheque bounce charges and many others. Actually these charges are not hidden as they are mentioned in the terms and conditions of the loan document. Reality is that applicants or borrowers do not pay attention to these charges and later blame lenders for not disclosing the charges.
In this article we’ll talk about the processing fee which is nothing but the fee charged by lenders for processing and completing the complete loan application. This fee is charged when you apply for home loan, personal loan, car loan etc. Other name for processing fee is administrative fees. And borrower has to pay this fees during the loan application.
However not every lender charges processing fee. And listed in the below table is the list of banks offering personal loan with zero processing charge:
- State Bank of India – Clean Overdraft
- Bank of India – Star Mitra
- Allahabad Bank – Loan for Pensioners
- Indian Overseas Bank – No fees for loan upto Rs. 25,000
- Punjab National Bank – For Pensioners
- UCO Bank – For Pensioners
- Vijaya Bank – Vswashakti (Only for Women)
What is the GST impact on processing fee?
Typically the personal loan processing fee is in the range of 0.4% – 2.5% in addition to the service tax of 15%. However post GST implementation; in addition to processing charge, Goods and service tax (GST) of 18% will be also levied. So the overall money going out of borrower will increase.
For e.g. if the personal loan amount is Rs. 9,00,000 (9 Lakh).
Before GST the total processing fee would’ve been Rs. 10,350 – Rs. 20,700.
After GST the fees would be in the range of Rs. 10,620 – Rs. 21,240
When should you prefer credit from such banks with no processing fee?
While taking personal loan, if the loan amount is high then it makes sense to look for lenders who charge zero processing fee. You should calculate total outflow while evaluating the lender. Processing fee should not be the only factor you should consider, as banks levy various other charges such as prepayment, partial closure, duplicate statement, cheque bounce charges etc. Check out banks charging zero foreclosure fee.
Why banks charge processing fee?
Putting time in doing activities such as verifying loan application, multiple documents, and other details involve human efforts and other operations cost. So cost of these efforts is what banks recover in the form of processing fee. Higher the loan amount, higher would be the processing fee.
If the loan application gets rejected, can you get refund?
Processing fee is refundable. You should ask banks before applying for the loan and get this confirmed in written. No verbal communication.