The Real Cost of a Loan: Beyond the Interest Rate
Interest is the headline. Processing fees, insurance, and prepayment charges are the fine print that changes the total.
Two loans with the same interest rate can cost very different amounts once every charge is added up. The number to compare is the total amount repayable, not the rate.
Processing fee
Usually 1% to 3% of the loan amount, deducted upfront — so on a 1,00,000 loan with a 2% fee, you receive 98,000 but repay interest on the full 1,00,000. GST applies on top of the fee.
Documentation, stamping and platform charges
Smaller line items that vary by lender and state. Individually minor, collectively worth reading.
Optional insurance
Credit-life insurance is sometimes bundled with the loan. It can be worth having, but it should be a clear, separately-priced choice — not something you discover in the sanction letter.
Prepayment and late fees
- Prepayment charges: a percentage of the outstanding principal if you close the loan early. Regulated floating-rate loans to individuals often waive this — check your terms.
- Late payment fee: a fixed charge plus penal interest on the overdue amount.
- Bounce charges: levied each time an auto-debit fails.
Ask for the Key Fact Statement (KFS). Lenders are required to give you one, and it lists every charge and the APR in a standard format built for comparison.
This article is for general education and is not financial advice. Loan terms vary by lender and by your individual profile.
