How do fees like origination or processing fees add to the overall loan cost?

Origination or processing fees are one-time charges that lenders in India collect when they process and disburse your personal loan. These fees are usually a percentage of the total loan amount usually ranging from 0.5% to 4%. The lender either deducts this fee from your sanctioned loan amount or adds it to your total repayment. While the processing fee may look small in comparison to the entire loan, it directly increases the effective cost of borrowing.

You may then end up receiving less money in hand or paying more over the loan tenure.

But that’s not the only fee you need to watch for. Lenders may also charge verification fees, documentation charges, prepayment or foreclosure penalties and even GST on top of these charges. For example, GST at 18% is commonly applied to processing and other administrative fees. Some lenders also impose stamp duty, loan cancellation charges, or fees for statement requests and EMI swaps. All these extra costs can quietly add up, making your loan more expensive than you first expected.

When comparing loan offers, always include these fees along with the interest rate to get a true sense of the total cost. The Annual Percentage Rate (APR) is a useful measure as it combines the interest rate and all mandatory fees, showing you the real yearly cost of borrowing. By understanding and factoring in every charge, you can avoid surprises and make a smarter, more cost-effective borrowing decision that fits your budget and financial plans.