How do I calculate my total cost of borrowing for a personal loan?

To correctly analyse and understand the total cost of borrowing a personal loan you must consider more than just the interest rate. The calculation begins with the principal amount—the sum you intend to borrow. The next crucial element is the interest rate, which is typically quoted annually. This rate directly influences the amount of interest you will pay over the loan tenure. Processing fees are another significant factor; these are usually charged as a percentage of the loan amount and are payable upfront at the time of disbursal.

Other costs to account for include prepayment or foreclosure charges, which may apply if you choose to resolve your loan before the agreed tenure. Lenders may also levy documentation fees, late payment penalties, and taxes such as GST on various services involved in the loan process. All these charges collectively contribute to the overall expense of your loan.

A practical method to estimate your total repayment is to use a personal loan EMI calculator. By entering the loan amount, interest rate, tenure, and processing fee, you can instantly see your monthly EMI and the total repayment amount. Multiply the EMI by the number of months in your tenure, then add any upfront and recurring fees to arrive at the total cost.

For a comprehensive view refer to the Annual Percentage Rate (APR) which consolidates the interest rate and all mandatory fees into a single yearly percentage, making it easier to compare offers from different lenders. Always check and carefully review the terms and conditions to clearly identify any hidden charges before finalising your loan agreement.