When taking a loan, the interest rate is just part of the story. Hidden fees and charges can add significantly to the total amount you repay. Understanding how to calculate the true cost of a loan helps you make informed borrowing decisions and avoid surprises.
Vizzve Finance explains how to factor in all costs for a clear loan picture.
Components of Loan Cost
Interest Rate: The percentage charged on the loan principal.
Processing Fees: One-time fees charged for loan processing.
Prepayment Charges: Fees for paying off the loan early.
Late Payment Fees: Penalties for missed EMIs.
Other Charges: Documentation, administrative, or insurance fees.
How to Calculate the True Cost
Identify the Interest Type
Know if your loan has a fixed or floating interest rate.
Calculate Total Interest Payable
Use the loan tenure and EMI to estimate total interest.
Add All Fees
Include processing fees, prepayment penalties, and any additional charges.
Find the Effective Interest Rate (EIR)
EIR reflects the true annual cost of your loan including fees.
Use Online Loan Calculators
Many calculators factor in fees to give an accurate cost estimate.
Example Calculation
Loan Amount: ₹5,00,000
Interest Rate: 10% p.a. (fixed)
Tenure: 5 years
Processing Fee: ₹5,000
Prepayment Charges: ₹2,000 (if applicable)
Calculate total interest over tenure + fees to find your true loan cost.
Why Knowing the True Cost Matters
Helps compare loan offers effectively.
Prevents unexpected financial burdens.
Aids in budgeting for loan repayment.
Encourages smarter borrowing habits.
How Vizzve Finance Supports Transparent Loans
Vizzve Finance provides clear loan details and calculators to help you understand and manage loan costs confidently.
FAQs
Q1. What is the difference between interest rate and EIR?
Interest rate is the basic percentage charged; EIR includes all fees and shows the actual cost.
Q2. Can fees be negotiated with lenders?
Sometimes yes, especially processing fees or prepayment penalties.
Q3. Does Vizzve Finance charge hidden fees?
No, we emphasize transparency in all loan products.
Q4. Are online calculators reliable?
Most are, but always verify with lender terms.
Published on : 10th August
Published by : SMITA
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