Loan application rejected, but you may still have to pay processing fees. Know why


After the covid-19 crisis, many lenders tightened their lending standards to avoid delinquencies, which can arise when people’s budgets are stretched due to job losses and wage cuts. Many people who applied for loans during this time and were turned down complain on social media that lenders are charging them processing fees despite their application being rejected. Let’s understand what processing fees are and why banks charge them.


These are one-off fees charged by the lender for the cost incurred by the lender for processing the loan. It typically includes document processing fees, attorney fees (if applicable), technical fees for the property appraisal carried out in the event of a mortgage or property loan, and other costs thereof. type.

There are no regulations on the amount of processing fees that a lender can charge. Different lenders charge different processing fees depending on the cost they incur. It may also vary from client to client and based on a variety of other factors.

Processing fees may vary depending on the type of loan, the amount of the loan, and the creditworthiness of the borrower.

For example, the processing fees for a home loan can vary from ??5,000 to 1% of the loan amount. While in the case of an unsecured loan, it can vary from ??1,000 to 4% of the loan amount.

“In general, banks charge a higher percentage of processing fees for a smaller loan amount, while tending to give a discount in case the loan amount is higher,” said Gaurav Gupta, CEO of Myloancare.

What other lenders charge also matters, as every lender wants to stay competitive. Typically, banks charge lower processing fees than NBFCs.

The way banks charge fees is also different. “In most cases, the processing fee once paid is non-refundable. Some lenders have a policy of cashing the check processing fee only in the event of a penalty. In many cases, lenders divide the total processing fee into two parts: a connection fee payable in advance and a balance processing fee payable at the time of sanction or disbursement, ”Gupta said.

“Typically, public sector banks charge a processing fee after the loan is sanctioned, while private sector banks charge up front,” said Aditya Mishra, CEO of, a platform that helps borrowers transfer their home loans to other financial institutions.


When applying for a loan, you should discuss the processing fee upfront with the lender. Pay attention to processing fees billed under any other name. “There are no specific regulations governing the amount of processing fees, but regulations require that all fees and charges be transparent and non-discriminatory in nature. All hidden charges are prohibited, ”Gupta said.

You need to be careful if the lender tries to sell you something like insurance, credit report as a mandatory fee to qualify for the loan. Look for a lender who charges a lower processing fee and interest on the same loan amount.

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