Personal loan fees explained

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.

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.

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.