Loan not sanctioned: Will they refund processing fee?

Will I or will I not get the processing fee back when the loan is declined? Read on to solve the puzzle about processing fee.

I took a home loan for a property in Indirapuram. At the time of filing the application, I mentioned my requirement as Rs 28 lakh to the bank. However, in its sanction letter, the bank has given me only Rs 22 lakh.

Would I be entitled to get the processing fee back from them?

-- Varun

Some banks refund the processing fee if the loan is declined, provided they have given a commitment to do so. However, where the loan processing has been completed and the loan amount has been sanctioned, the processing fees will not be refunded.

Will I get my money back?

In case the bank had sanctioned the entire amount (Rs 28 lakh) and you had declined it, you will not be entitled to get your processing fee back. However, in this particular instance, they might consider refunding a part of the payment since they have offered only Rs 22 lakh. You need to discuss this upfront with the bank when you apply for a loan.

How it works?

When you apply for a loan, there are a set of documents - age proof, income proof, property documents - that need to be submitted. These documents are verified by the bank after which they confirm your loan eligibility and sanction the loan amount.

When the bank collects these documents from you, they also collect the processing fees. In some instances, a part of this may be collected as a non-refundable amount and part maybe collected at a later stage.

How much is it?

The processing fee varies from bank to bank. It ranges anywhere between 0.5 per cent and 1 per cent of the loan amount you apply for.

For instance, If the loan amount is Rs 30 lakh, depending on the bank the processing fee maybe anywhere between Rs 15,000 and Rs 30,000.

There is generally a cap on the processing fee charged. For instance, If you borrow a loan amount of Rs 2 crore from the bank, 2 per cent of this amount will work out to Rs 4 lakh! In this case, the bank might cap it off on a maximum limit of say Rs 40,000.

What is the processing fee used for?

The processing fee is utilised for the verification process of the documents you submit to the bank. Verification of the documents involve people, effort and legal charges.

Tip: Before paying the processing fee, get a written commitment from the bank stating they will refund the processing fee in case the loan is declined.

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