Personal loan fees explained
Learn exactly what personal loan fees you could incur and ones you can potentially avoid.
There’s a fee for just about everything when it comes to personal finance — and personal loans are no exception. When fees are ongoing, they can add hundreds of dollars onto the cost of your loan. And owing more isn’t what you want when you’re borrowing money.
You may not be able to avoid every fee, but you might be able to minimise what you end up paying over the long run.
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Opening your loan
After you’ve made sure you meet a lender’s credit score and eligibility requirements, your next step to borrowing is filling out an application. Keep an eye out for the following potential fees as you move toward signing the dotted line.
An application fee typically combines the costs of processing, document preparation and reviews a bank or lender charges to put together a loan on your behalf.
Personal loans tend to come with a lower application fee than you’ll see with a mortgage, but there can still be some pretty high fees. Some lenders may charge up to $100 just to process and underwrite your application.
You typically pay this fee at the time of application, and it’s nonrefundable — even if you’re denied the loan.
- Application fees are fairly uncommon among personal lenders. If you find one that charges one, you may be able to negotiate it down. This is especially true if the fee includes a commission.
If you choose to bypass a direct lender and instead apply with a broker or service that connects you with multiple loan offers, you might pay a fee for the convenience. Brokerage fees arise when a broker isn’t making a commission or isn’t paid by the lenders in its network.
Many services that connect you to lenders are free. If you’re charged a fee, it’s typically a flat fee that you only pay after you’ve applied or accepted a specific loan agreement.
- Either apply directly with a lender to avoid this fee or find a broker that doesn’t charge the borrower for its services.
A closing fee generally includes a lender’s commission, a brokerage fee and other associated application costs. While this term is typically associated with real estate, you’ll find a few personal lenders that also charge it.
Your closing fee may be rolled into the monthly cost of your loan or taken out of the amount you’re ultimately funded. Either way, you could be looking at a couple of hundred dollars.
- It’s possible to find lenders that don’t charge closing fees. If yours does, you might be able to negotiate it.
If you apply for a loan that won’t be immediately funded, you might face an extra commitment cost. Generally, this fee is intended to make up any interest the lender could be charging you on the loan amount.
A commitment fee can be either a flat fee or a fixed percentage of the amount taken out of your disbursed loan amount.
- Avoid this fee by funding your loan right away rather than delaying disbursement. If you don’t need the money right away, consider applying when you’re ready.
Document preparation fee
Your lender might charge a fee to offset the costs of drafting documents related to processing your loan. This includes the application, your specific terms and any other closing forms.
It is generally a flat fee of $100 or so that’s taken out of your loan.
- You may be able to find providers that don’t charge a document preparation fee if you want to avoid it.
Similar to document preparation and application fees, processing fees are typically charged by lenders to cover the cost of credit checks and underwriting. They are typically a flat fee taken out of the amount of your loan. You can expect to pay an amount equal to what you’d pay for prep and application fees: around $100.
- Many lenders don’t charge a processing fee. If yours does, the fee is likely unavoidable. Still, it’s worth trying to negotiate it down.
Paper copy fee
Online lenders sometimes charge borrowers a fee if it requests a physical copy of the loan agreement for their records. It’s also an option for borrowers who are uncomfortable using e-signatures on official documents.
If you request paper backup for your documents, you’ll typically pay a fixed $10 per copy.
- Easily avoid this fee by forgoing a paper copy of your documentation with an online lender or borrowing from a brick-and-mortar lender like a credit union or a bank. Even if you’re provided your documents electronically, you can often save them as PDFs and print them out at home.
Personal loan underwriters are the people who assess the level of risk a bank or other lender is potentially taking on with a specific borrower. Underwriting fees are designed to cover the cost of that assessment.
You’ll usually see this fee rolled into other fees that include origination, processing or document preparation. It’s generally a flat amount of no more than $100 that comes out of your total funded amount.
- Not all lenders charge an underwriting fee. Those who do charge this fee may be willing to negotiate it down.
Receiving your funds
The more crucial part of the process is why you’ve applied with a lender in the first place: to get the money you need to plan life’s next adventure, consolidate your debt or get over a financial hump. Here’s what to look out for when it’s time for a lender to disburse your funds.
Credit insurance fee
You may be offered credit insurance when you take out a personal loan. This insurance allows you to file a claim to cover payments you might have missed due to unexpected personal tragedy or hardship.
Credit insurance is typically a monthly payment of a few dollars that’s added to your repayment amount.
- It’s not necessary to add credit insurance to your loan. If a lender insists that it’s mandatory or tries to include it deceptively, look a different lender.
Also known as a disbursement or establishment fee, an origination fee can be rolled into the monthly cost of your loan or simply taken out of the amount you’re funded. It’s designed to cover the costs associated with your application process in its entirety.
This fee is typically assessed as a percentage of your loan amount ranging up to 8%.
If your personal loan provider charges an origination fee, it’s likely it will be deducted it from the amount you’re ultimately disbursed. Say you’re looking to borrow $10,000 through a loan that comes with a 2% origination fee. That $200 fee is deducted from your $10,000 loan amount, resulting in you receiving $9,800. Some lenders may tack the fee onto your loan amount instead of deducting it. If you need the exact amount you’re apply for and can’t afford to receive less, check with your lender to see if adding the origination fee to the loan amount is an option.
- Not all lenders charge an origination fee. If yours does, you probably won’t be able to negotiate it down or avoid it.
Repaying your loan
Even when you’re finally on the path to repayments, it doesn’t mean you’re free of fees. You could be asked to offset the costs associated with specific payment types and the consequences of late or missed payments.
Debt collection agency recovery fee
If you default on your loan, your lender may call on the services of a debt collection agency to get the payments it’s owed. The debt collection agency can pass along any fees associated with this service to you.
If your lender requires you to cover the costs of hiring a debt collection agency, you could pay a flat fee or a percentage of the repayment in question. Collection agency recovery fees are generally steep, reaching hundreds of dollars.
- If you’re worried about missing payments, contact your provider. They may be willing to work out different terms to get you through rough financial times.
Insufficient funds fee
If your repayment doesn’t go through or is returned for insufficient funds, you’ll likely pay a fee. These fees are called dishonour fees.
Dishonour fees can run $15 or more and are often added to the amount due.
- To avoid this fee, confirm that you have the funds available in your account when you’re making a payment. If your payment history is otherwise spotless, call your lender to explain your situation — it might be willing to waive the fee.
Electronic payment processing fee
Though a less common fee, you could face an electronic payment processing fee if your lender enforces strict repayment terms. This fee is designed to offset the cost of one-time electronic payments, including payments made by wire transfer.
You’ll usually end up paying an extra $5 for each payment made this way.
- It’s easy to find lenders that don’t charge this fee. If your lender does, ask if it is willing to waive it for automatic payments from your bank account.
Late payment fee
Many lenders charge a default fee when your repayment is received past its due date, though some lenders offer a grace period before applying any late charges.
Default fees are usually added on to the delinquent amount as a flat fee, or though it can also be a percentage of what you owe. You may face default fees of as little as $2 or up to $35 depending on the lender and its terms and conditions. Sometimes lenders charge the greater or lesser of a percentage or flat fee.
- Enrolling in automatic payments can help you avoid this fee. If you don’t think you’ll be able to make a payment on time, call your lender as soon as possible. You may be able to work out a plan to avoid any late fees, especially if your payment history is good.
Payment convenience fee
With some lenders, paying by debit or credit card — rather than through direct payments via electronic banking — can trigger a payment convenience fee. This fee is usually assessed per transaction and added to the typical cost of your repayment.
- If your terms and conditions indicate that electronic payments are required, you’ll need to follow suit with your repayments or pay this charge.
It can be exhilarating to find yourself able to put more toward your principal or even pay off your loan before it’s fully due. But you’ll want to be sure that your lender doesn’t charge a prepayment fee, also called an exit fee. This fee is intended to cover the interest that your lender would have collected over the life of your loan.
Prepayment fees come as both flat fees and percentages, depending on your lender, and can be steep — sometimes hundreds of dollars.
- If your contract includes a stipulation against prepayments, simply holding off on extra repayments can help you avoid this fee. But many lenders don’t charge it, which means you might be able to find one matching your needs without worrying about this fee.
Lenders can tack on just about any type of fee by explaining that it is intended to cover the costs of maintaining your loan.
You might see an annual fee tacked onto your loan schedule — often a flat $100 or more added to your account once a year. This fee is designed to take the costs of maintaining your account off of your lender.
- Not all lenders charge annual fees so it’s easy enough to find a loan without it. If yours does, an annual fee is among those long-term costs you can try to negotiate — especially if you’re paying other forms of administration fees.
Other ongoing administration fees
Administration fees come by many different names: loan service fees, ongoing monthly fees, online connection fees and more.
Like an annual fee, these miscellaneous fees effectively reimburse your lender the costs for maintaining your loan. But “ongoing” implies a monthly fee tacked on to your regular repayments, representing either a percentage of your loan or a flat fee. Paying one or more of these fees each month can put a dent in the amount of your payment that actually goes toward your principal.
- Carefully read the fee structures that come with your loan to determine just how many you might be paying to your lender. Many of these fees are simply the costs of doing business passed on to you. Call your lender to see if you can negotiate or even drop one altogether.
What fees do top lenders charge?
|Lender||Application fee||Monthly service fee||Early prepayment fee||Loan security fee||Account administration fee|
|Harmoney||$200-$450 depending on loan size||$0||$0||N/A||N/A||Learn more|
|NZCU South||$250||$0||$25||$50||N/A||Learn more|
|Lending Crowd||$250-$1,450 depending on the amount borrowed||$0||N/A||N/A||N/A||Learn more|
|Admiral Finance||$125-$595 depending on loan size||$40||$0||$12 per month||Learn more|
|Swoosh Finance||$240||$0||N/A||$0||$10 per month||Learn more|
|QuickLoans||$95-$595 depending on loan size||$12||N/A||N/A||Learn more|
Every personal loan comes with unavoidable fees. But that doesn’t mean you have to accept all of them that come your way when borrowing from a lender.
Even small penalty fees can add hundreds of dollars to the cost of your loan. Look for a lender that charges minimal fees — or none at all. If you’re charged a fee for a loan you’ve already taken out, contact your lender and see if it can be waived or reduced.
When you’re ready to begin comparing your options, read our reviews of lenders and products to find one that fits exactly what you need.
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