Be wary of hidden charges in loans with zero processing fees

Processing fees are usually charged as a percentage of the loan amount, usually 0.5-1 per cent, or a minimum fixed amount, whichever is higher.

Banks and housing finance companies often have campaigns where they waive processing fees in a bid to increase their home loan portfolios. 

Currently, banks like State Bank of India, Bank of India, Union Bank of India and Dena Bank have waived processing fees on home loans till March 31.

But, it need not always be cheaper than a loan where you have to pay processing fees, points out Gaurav Gupta, of Myloancare.in.

“Sometimes charges such as technical fees, legal fees, valuation fees all put together can add up to more than processing fees. And if processing fees have been waived, you may still have to pay other fees. As against this another lender that charges processing fees, but not other fees, may be cheaper,’’ he says.

Legal fees or advocate fees are charged for property search and the title investigation report.

Valuation fees are charged for valuation report. In many cases, these are not refundable because the lender has incurred charges for providing these services. 

Some lenders charge a separate login fee that may be non-refundable.

While some others may deduct it from the processing fee. In some cases the lender may take the cheque upfront but does not encash it unless the loan is approved.

“Many customers are wary of paying processing fees upfront, in case the loan application gets rejected. It may happen if the particular project is not approved by the lender. It could also happen in case of resale property, where the bank gets a negative report about the property. In such cases, the customer may have to forego the processing fees,’’ Gupta points out.

Processing fees are usually charged as a percentage of the loan amount, usually 0.5-1 per cent, or a minimum fixed amount, whichever is higher.

So, if you are availing a loan of Rs 50 lakh, the processing fees will be in the range of Rs 25,000-50,000.

In some cases, lenders offer a capping on processing fees for salaried borrowers and this may vary based on the city.

“These are not usually disclosed on lenders’ websites and customers get to know of them only when they approach the lender for the loan,’’ says Gupta. 

Login fees can be as high as Rs 4,000-10,000, but may be adjusted against the processing fee if loan is approved.

Adhil Shetty, chief executive officer (CEO), Bankbazaar.com says customers are willing to pay higher interest rates if they get a waiver on processing fees. “If customers are not sure whether their loan will be approved, they feel it is better not to pay the processing fees upfront,’’ he says.

Other factors to consider is the turnaround time for the loan to get sanctioned or if the lender is willing to offer a higher loan amount or a longer loan tenure.

“If, for instance, there is cut-off date for making the payment to the builder, but the lender is slow with disbursal, then you will lose the chance to buy the property. In such cases a lender that offers faster service may help more than one that waives off processing fees,’’ Shetty says.