Loan Cancelled, Processing Fee Kept? Ask for a Breakdown
Paid a loan processing fee but the loan was cancelled or rejected? Learn what RBI rules say, how to request a written fee breakdown and when to seek a refund.
In this article (6 sections)
If you paid a processing fee and the loan was later rejected, cancelled by you, or never disbursed, start by asking the lender for a written breakdown of what you paid and what, if anything, is refundable. RBI's fair practices rules expect lenders to disclose processing fees, and the refundable amount if the loan is not sanctioned or disbursed, before you apply. For digital loans, a fee can be kept on exit during the cooling-off period only if the Key Facts Statement (KFS) said so upfront.
Whether you get money back depends on what was disclosed. A breakdown tells you that quickly. Rules are stated as of October 2026.
Three common situations
| Situation | What usually applies | What to ask |
|---|---|---|
| Loan rejected after you paid a fee | Refund depends on the refundable amount disclosed in the application, sanction letter or KFS | Breakdown and the disclosure showing refundability |
| You cancelled after sanction, before disbursement | Lender's disclosed terms; often partly or fully non-refundable | Breakdown, and what work was actually done |
| You exited a digital loan in the cooling-off period | Repay principal plus proportionate APR; lender may keep a reasonable one-time processing fee only if disclosed in KFS | Exit amount computation and KFS reference |
| Loan cancelled after disbursement, outside cooling-off | Treated as early closure under the loan terms | Foreclosure statement; check pre-payment charge rules |
What RBI rules say
Disclosure of processing fees. Since 2003, RBI's Fair Practices Code has asked lenders to state in the loan application the processing fees and the amount refundable if the application is not accepted. RBI later extended this disclosure to all loans and said that adding undisclosed charges is an unfair practice. These principles now sit in RBI's consolidated Responsible Business Conduct Directions, 2025. The exact refund is set by each lender's disclosed terms, so the disclosure you received matters.
Key Facts Statement. Under RBI's circular of 15 April 2024 (applicable to new retail and MSME loans from 1 October 2024), the KFS must list all fees and the Annual Percentage Rate (APR). Any fee or charge not mentioned in the KFS cannot be charged at any stage without your explicit consent. Third-party charges such as insurance or legal fees, if recovered by the lender, must be disclosed separately.
Digital loans. RBI's Digital Lending Directions, 2025 give you an explicit option to exit a digital loan during a cooling-off period, set by the lender's board but at least one day, by repaying the principal and the proportionate APR without penalty. The lender may retain a reasonable one-time processing fee, only if disclosed upfront in the KFS. Fees for lending service providers (LSPs, such as loan apps or agents working for the lender) must be paid by the lender, not collected from you separately.
GST. Processing fees attract GST, generally 18%. If a fee is refunded, ask whether the GST portion is also refunded or adjusted.
Step-by-step: request a written fee breakdown
1. Gather your papers
- Application form, sanction letter and KFS (or the digital loan's KFS screen or PDF)
- Payment receipt or bank statement showing the fee debit
- Any message cancelling or rejecting the loan
2. Work out what you actually paid
Worked example:
You applied for a ₹3,00,000 personal loan with a processing fee of 2% plus GST, paid upfront.
- Base fee: ₹3,00,000 × 2% = ₹6,000
- GST at 18%: ₹6,000 × 18% = ₹1,080
- Total paid: ₹7,080
The lender later rejected the application. Suppose the application form said ₹1,000 plus GST is non-refundable "for verification". Then the refundable amount should be ₹7,080 − (₹1,000 + ₹180) = ₹5,900, assuming the GST on the refunded part is also returned. If nothing was disclosed about refundability, ask for the full amount back.
Now a digital loan instead. You took ₹3,00,000, the fee of ₹7,080 was deducted, so ₹2,92,920 reached your account. You exit on day 2 of the cooling-off period. The KFS shows an APR of 18% and says the processing fee is retained on exit. You repay the principal of ₹3,00,000 plus proportionate APR, say ₹3,00,000 × 18% × 2 ÷ 365 = about ₹296. Your total cost of exiting is the retained fee of ₹7,080 plus about ₹296. The figures are illustrative; the lender's exact exit computation follows its KFS. Compare offers using APR with our EMI calculator and read loan APR and total borrowing cost.
3. Send the request
Sample request:
Subject: Request for written breakdown and refund of processing fee, application/loan [number]
On [date] I paid ₹[amount] as processing fee for application/loan [number]. The loan was [rejected/cancelled at my request on date/not disbursed]. Please provide in writing: (a) the break-up of the amount collected (base fee, GST, any other charge); (b) the portion treated as non-refundable and the disclosure in the application form, sanction letter or Key Facts Statement on which this is based; (c) the refundable amount, including GST, and the date and account to which it will be credited. If any fee was not disclosed in the KFS, I request a full refund, as such charges cannot be levied without my explicit consent under RBI's KFS circular dated 15 April 2024.
Send it to the lender's grievance redressal officer, from your registered email. Keep the acknowledgement and complaint number.
4. Check the reply against the documents
- Does the non-refundable portion match what was disclosed?
- Is there a charge you never saw before, such as "login fee" or "documentation charges"? If it is not in the KFS, dispute it.
- Was any fee collected by an agent or app separately? For digital loans this is not allowed.
If the lender is a bank and other unexplained charges show up in your account, hidden bank charges refund explains how to challenge them.
5. Escalate if needed
If there is no reply within 30 days or you disagree, file with the RBI Integrated Ombudsman at cms.rbi.org.in, or call 14448. Under the Reserve Bank – Integrated Ombudsman Scheme, 2026, file within 90 days after the 30-day window or the lender's last reply, whichever is later. Attach the payment proof, the KFS and the lender's reply.
Watch out for advance-fee fraud
A very common scam is the "processing fee" demanded before a loan is approved, by someone who is not a lender at all. Warning signs:
- The "fee" must go to a personal bank account or personal UPI ID
- You are told the loan is "approved" but needs "insurance", "GST" or "file charges" first
- The company is not on RBI's lists of regulated entities and has no KFS
- Repeated new fees after each payment
If this happened, report at cybercrime.gov.in or call 1930 immediately, and check the entity at sachet.rbi.org.in. See how RBI regulates instant loan apps.
What not to do
- Do not pay any fee to a personal account or to an agent without the lender's official receipt.
- Do not share OTPs or PINs to "release" a loan or a refund.
- Do not accept a verbal "non-refundable"; ask where it was disclosed.
- Do not let a disbursed loan sit unused hoping to cancel later; outside the cooling-off period, interest and closure terms apply.
- Do not apply to many lenders at once to compare fees; each application can mean a hard inquiry. Check personal loan eligibility and documents first.
Key takeaways
- Ask for a written breakdown: base fee, GST, non-refundable part and the disclosure behind it.
- RBI's fair practices rules require processing fees and refundability to be disclosed upfront.
- Fees not in the KFS cannot be charged without your explicit consent.
- For digital loans, you can exit in the cooling-off period; only a disclosed, reasonable processing fee may be kept.
- Escalate to the RBI Ombudsman after 30 days; report advance-fee scams to 1930.
Frequently asked questions
Is a loan processing fee refundable if the loan is cancelled?
It depends on the lender's disclosed terms. RBI's fair practices rules require lenders to disclose processing fees and how much is refundable if the loan is not sanctioned or disbursed. If the fee was clearly disclosed as non-refundable, a refund is unlikely; if it was not disclosed, you have a strong case.
Can I cancel a digital loan and get my money back?
Under RBI's Digital Lending Directions, 2025, you can exit a digital loan during the cooling-off period by repaying the principal and the proportionate APR without penalty. The lender may keep a reasonable one-time processing fee only if this was disclosed upfront in the Key Facts Statement.
Can a lender charge a fee that is not in the Key Facts Statement?
No. Under RBI's April 2024 KFS circular, fees or charges not mentioned in the KFS cannot be charged at any stage of the loan without your explicit consent.
Is GST charged on loan processing fees?
Yes, GST at 18% generally applies to processing and similar fees charged by banks and NBFCs. Ask for an invoice or breakdown showing the base fee and GST separately.
Can a loan agent charge me a separate fee?
For digital loans, RBI requires fees payable to lending service providers to be paid by the lender and not collected from you separately. For any loan, pay fees only to the lender's own account against a receipt, never to an agent's personal account.
This article is for general education and is not personalised financial, tax or legal advice. Rates and rules are as of 27 Oct 2026; confirm current terms with your lender, AMC or a qualified adviser.
