The interest rate is only part of what a loan actually costs. Fees can add a meaningful percentage to your effective cost of borrowing, and they're easy to overlook when you're comparing two offers side by side.
Common fees to check for
| Fee | Typical range | Notes |
|---|---|---|
| Processing fee | 0.5% – 3% of loan amount | Usually deducted upfront from the disbursed amount |
| Documentation / legal fee | Flat fee, varies by lender | More common on secured loans (home, property) |
| Insurance / credit-shield premium | 1% – 3% of loan amount | Often optional, but sometimes bundled by default — ask explicitly |
| Prepayment / foreclosure charge | 0% – 5% of outstanding amount | Prohibited on floating-rate individual loans by RBI rule |
| Late payment penalty | 1% – 3% per month on overdue amount | On top of continuing regular interest |
| Loan cancellation / conversion fee | Flat fee | Applies if you switch from floating to fixed rate or cancel post-approval |
Why the "disbursed amount" matters
If you borrow ₹5,00,000 with a 2% processing fee, you receive ₹4,90,000 in hand — but your EMI is still calculated on the full ₹5,00,000. This effectively raises your real cost of borrowing above the headline interest rate, since you're paying interest on money you never actually received.
How to compare offers fairly
- Ask each lender for the total fee schedule in writing, not just the interest rate.
- Calculate the EMI on the full loan amount (not the disbursed amount) using our EMI calculator — that's what you'll actually pay.
- Ask specifically whether insurance is mandatory or optional, and get the premium quoted separately.
- For loans you might prepay early, ask about foreclosure charges before signing, not after.
Once you have the full fee picture for two competing offers, use our loan comparison tool to see which one is genuinely cheaper once fees are accounted for in your own back-of-envelope math.