Loan processing fees: Get a better deal

There are different charges individuals have to pay to avail of any service. Home loans are no different. A processing fee has to be paid to the housing finance company (HFC) for the home loan.

Processing fees are charged differently by different HFCs. Some HFCs take a processing fee from the individual upfront before the loan is sanctioned.

That is, when the individual walks into the HFC's office and once all the requisite documents have been submitted to the HFC, a processing fee is levied on the individual.

This is generally a percentage of the loan amount. For example, say, an individual wants to take a home loan of Rs 1,000,000, then the processing fees charged will be 0.50% of the said amount, i.e. Rs 5,000.

Some HFCs also have a minimum amount of processing fee -- that is, the processing fee is say, Rs 2,250 or 0.50% of the home loan amount, whichever is higher.

In some cases, an HFC will take a part of the processing fee before the sanction (say, Rs 500). This part of the fee is non-refundable. Of course, they mention it to the client that the same (i.e. Rs 500) is non-refundable. The remaining amount is taken at a later stage.

Some HFCs have a policy of refunding the said processing fees to the borrower if the loan is declined.

This is the case even when the loan application has been withdrawn by the individual for whatever reason. Individuals will have to enquire about the HFC's refund policy to get a clarity on this.

Individuals also need to look into whether the said fees are 'flexible'. For example, individuals working for premium companies like say, Hindustan Lever or Reliance have to pay a lower processing fee than individuals working for second rung companies. In fact, individuals can also 'bargain' with HFCs for a lowering of the processing fee rates irrespective of which company they are working for.

Bargaining for a lower processing fee is also possible if the borrower has already got his loan approved from one HFC but decides to shift to another HFC for actual disbursal.

Of course, the said percentages are applicable only on home loans. The percentages applicable on loan against property (LAP) are different than those pertinent to home loans. They are generally higher than the applicable home loan rates.

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