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Personal loan fees explained
Learn exactly what those charges are so you can avoid potentially unnecessary costs.
There’s a fee for just about everything when it comes to personal finance — and personal loans are no exception. You won’t be able to avoid every fee, but you might be able to minimise what you end up paying over the long run. This guide covers personal loan fees, including the pesky hidden ones to watch out for.
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 these potential fees as you move toward signing the dotted line.
Processing fee
A processing fee typically combines the costs of establishing, document preparation and review a bank or lender takes on. It’s a catch-all term for the cost of putting together a loan on your behalf.
Personal loans tend to come with a lower processing fee than you’ll see with a mortgage, but there can still be some pretty high fees. Some lenders may charge a fixed sum or percentage of your loan amount just to process and underwrite your application. You typically pay this fee at the time of application, and it’s non-refundable — even if you’re denied the loan.
Processing 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.
Brokerage fee
If you choose to bypass a direct lender and instead apply with a broker that connects you with multiple loan offers, you might pay a fee for the convenience. Loan brokers are more common for mortgage or business loans.
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.
Closing fee
A closing fee generally includes a lender’s commission 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’re looking at no more than a couple hundred dollars.
It’s possible to find lenders that don’t charge closing fees. If yours does, you might be able to negotiate it.
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.
Personal loan 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.
Personal loan insurance is typically a monthly payment of a few dollars that’s added to your repayment amount.
It’s not necessary to add insurance to your loan. If a lender insists that it’s mandatory or tries to include it deceptively, look a different lender.
Disbursement fee
A disbursement fee is normally taken out of the amount you’re funded. It’s designed to cover the costs associated with your application process in its entirety. It may have also been accounted for in the processing fee.
This fee is typically assessed as a percentage of your loan amount ranging up to 3%.
If your personal loan provider charges a disbursement fee, it’s likely it will be deducted it from the amount you’re ultimately disbursed. Say you’re looking to borrow S$10,000 through a loan that comes with a 3% disbursement fee. That S$300 fee is deducted from your S$10,000 loan amount, resulting in you receiving S$9,700. Some lenders may tack the fee onto your loan amount instead of deducting it. If you need the exact amount you’re applying for and can’t afford to receive less, check with your lender to see if adding the disbursement fee to the loan amount is an option.
Not all lenders charge a disbursement fee. If yours does, you probably won’t be able to negotiate it down or avoid it.
Repaying your personal loan fees
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.
Collection agency recovery fee
If you default on your loan, your lender may call on the services of a collection agency to get the payments is owed. Many pass along any fees associated with this service to you.
If your lender requires you to cover the costs of hiring a 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 a loan representative with your provider. Your lender may be willing to work out different terms to get you through rough financial times.
Non-sufficient 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 returned cheque, failed payment or returned payment fees.
Non-sufficient funds fees can run S$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.
Late payment fee
Many lenders charge a fee when your repayment is received past its due date, though some lenders offer a grace period before applying any late charges.
Late payment fees are added on to the delinquent amount as a percentage of the amount due or a flat fee. The percentage generally runs around 4% of your repayment, with steep flat fees around S$75 to S$100. 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.
Early settlement fee
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 an early settlement 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.
Early settlement 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 early settlement, 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.
Administrative fees
Lenders can tack on just about any type of fee by explaining that it is intended to cover the costs of maintaining your loan.
Annual fees
You might see an annual fee tacked onto your loan schedule — often a flat S$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.
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Bottom line
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.
Frequently asked questions about personal loan fees
Yes. You can find lenders that don’t charge processing or early settlement fees. These loans typically require you to have excellent credit.
No. That depends on your specific loan’s terms and conditions.
An effective interest rate includes finance charges or other upfront and the total amount you’re financing.
They might be. Fees typically aren’t refundable, but check with your provider to learn about any of those that are.
Rhys Subitch is a writer and editor at Finder who tackles topics across the site. With half a decade of experience researching, editing and writing for a Fortune 500 company, university and several independent publications, Rhys brings readers the most up-to-date and curated info on all things finance.
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