Review EMI schedule, processing fees and prepayment rules to avoid unexpected costs and disputes.
With personal loan demand still strong in India this year, lenders and consumer advocates are urging borrowers to read the personal loan agreement carefully before signing. The contract sets the loan amount, rate, tenure and fees, and governs your EMI schedule. Here are the three checks that matter most right now to avoid surprise charges and disputes.
Why this matters and how problems happen
Many borrowers focus on the loan amount, interest rate and EMI, but miss the fine print that controls how and when money moves, what fees apply and how early repayment works. Processing fees can reduce the cash you actually receive. Prepayment windows can be limited. Foreclosure charges can offset interest savings. All of it sits in the agreement you sign.
What to check in your agreement
Loan amount, rate, tenure and EMI schedule
Verify the sanctioned amount, interest rate type and tenure.
Confirm the exact EMI amount, debit date each month and the last EMI date in the repayment schedule.
Make sure the bank account details for auto-debit are correct to avoid penalties and credit score hits.
Processing fees and deductions
Most lenders charge a processing fee that may be deducted from your disbursal, so the credited amount is lower than the sanction.
The fee is usually non-refundable.
Examples from lender websites:
IDFC FIRST Bank lists a 2% processing fee on its FIRSTmoney Smart Personal Loan.
Kotak Mahindra Bank states a processing fee up to 5% and notes it is deducted at disbursal.
Partial prepayment and foreclosure rules
Check if part-prepayment is allowed, after how many months, how often per year and any caps.
Confirm the fee type and how it is calculated.
Example calculation: If you prepay Rs 25,000 and the fee is 2% on the prepaid amount, you pay Rs 500 plus taxes.
Review foreclosure charges:
Kotak Mahindra Bank’s website cites 4% plus taxes on outstanding principal up to 3 years, and 2% plus taxes after 3 years.
Kotak also notes part-prepayment allowed up to 20% of outstanding, once a year, after 12 months, with Rs 500 plus taxes per instance.
Impact on borrowers
Lower-than-expected disbursal if fees are netted off.
Missed or delayed EMIs can trigger penalties and harm credit scores.
Tight prepayment windows or high foreclosure fees can reduce the benefits of paying early.
Key checks and examples
| What to check | Why it matters | Where to find | Example from lender sites |
|---|---|---|---|
| Loan amount, rate, tenure, EMI dates | Sets your cost and cash flow | Sanction letter, repayment schedule | EMI date and last EMI date listed in schedule |
| Processing fee and disbursal amount | Net cash credited may be lower | Fee schedule, disbursal note | IDFC FIRST Bank 2%; Kotak up to 5% deducted at disbursal |
| Part-prepayment rules and fees | Controls how you reduce interest | Prepayment clause | Kotak: after 12 months, once a year, up to 20%, Rs 500 plus taxes |
| Foreclosure charges | Affects payoff savings | Foreclosure clause | Kotak: 4% up to 3 years, 2% after |
A personal loan agreement is a legally binding contract between you and the lender. It spells out rights and responsibilities, fees, dispute resolution and jurisdiction. Reading it closely reduces ambiguity and prevents surprises later, especially on deductions at disbursal, prepayment windows and charges.
How to review before signing
Match the basics: Sanctioned amount, rate, tenure and EMI against what you were promised.
Scan the fee table: Processing fee, documentation, insurance, convenience or mandate charges. Note what is deducted at disbursal.
Check repayment details: EMI amount, debit date, bank account, penalties for bounce or delay.
Prepayment terms: When part-prepayment is allowed, how often, caps, and the exact fee.
Foreclosure terms: Cooling period, fee slab, taxes and process.
Compare totals: Calculate net disbursal after fees and your total cost if you hold to maturity.
Clarify in writing: Ask your lender to email clarifications for anything unclear.
Keep records: Save the signed agreement, repayment schedule and fee sheet.
Lenders continue to define their own fee structures within policy, so the safest move is to verify everything in your agreement before you sign. Confirm the EMI schedule, fee deductions and prepayment rules, and get any discrepancies corrected in writing. Doing this upfront protects your cash flow and helps you repay with fewer surprises.
Note: Terms can change and vary by lender and product. Always rely on the latest documents and official lender pages.
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