Various Loan Charges in India
In the previous blog we had seen the different types of business loan facilities available in India. In this blog, we shall see the various cost associated with raising a loan.
1. Interest Cost:
- Interest cost is the cumulative amount of interest a borrower pays on a debt obligation over the life of the borrowing. Interest is paid on the debt in addition to repayment of principal.
- Interest rates can be fixed, where the rate remains constant throughout the term of the loan, or floating, where the rate is variable and can fluctuate based on a reference rate.
2. Application Fee:
- A loan application fee is what lenders charge when a borrower applies for a loan.
- This fee is usually nonrefundable and many lenders do not charge application fees at all.
3. Processing Fee:
- Processing fee is one time charge which the banker collects from you.
- It is charged by the bank as it has to bear some administrative costs while processing and sanctioning your loan.
- This is usually a small amount, which varies from bank to bank and typically costs about 0.5% to 2.50% of the total amount of the loan.
4. Guarantee Fee:
- A guarantee fee is a sum paid to the issuer of a mortgage-backed security.
- These fees help the issuer pay for administrative costs and other expenses and also reduce the risk and potential for loss in the event of default of the underlying mortgages.
- Fees may be a percentage of the asset value or a fixed amount.
5. Late Fee:
- A late fee is penalty or additional amount charged by bank from the borrower who fails to make the payment on a debt (EMI) by the due date.
6. Prepayment Fee:
- Banks recover their money from the interest you pay on the Loan. If you pay off your debt before the stipulated tenure bank may incur a loss, with you discontinuing your loan before the set tenure.
- To make up for this loss, your bank may charge you a prepayment penalty.
- Typically, a bank will charge a small prepayment/foreclosure fee of 2-4%.
7. Documentation Fee:
- A documentation fee is a sum charged to process the paper work.
To Know more about Loans and Handling Finances visit our Website at Corporate Finance Consulting Firms.
Related Blogs:
DIFFERENT TYPES OF BUSINESS LOANS
