What is a processing fee on a personal loan?

Learn how lenders apply these fees, how much they cost and where to find a loan without one.

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When deciding to take out a personal loan, there are fees involved, with the most common being the personal loan processing fee. Knowing what costs to expect beforehand can help you compare lenders and score a more competitive loan.

Personal loan processing fee explained

A personal loan processing fee is a fee charged to cover establishing, document preparation and reviews it takes on. Typically, it’s a percentage of your loan amount — usually between 1% to 3% for banks (and usually up to a maximum of $200) and as high as 10% for licensed moneylenders. The processing fee applies after you’ve been approved for the loan. Take note that it’s non-refundable — even if you’re denied the loan.

Some lenders impose a fixed percentage based on the loan amount, but few may consider the following factors when coming up with your processing fee:

  • Creditworthiness. Generally, you’ll need to have good or excellent credit, exceed your lender’s income requirements and have a low debt-to-income ratio to qualify for the lowest processing fee.
  • Loan amount. Lenders may sometimes charge lower processing fees on larger loan amounts.
  • Loan term. The longer your loan term, the more you might end up paying for your processing fee.

    Ministry of Law's moneylending regulations

    To provide better protection for borrowers when accessing unsecured credit, the Ministry of Law had instilled stricter moneylending regulations.

    Since 1 October 2015, all moneylenders are to adhere to these limitations when imposing fees:

    • Late payment fees not exceeding S$60 per month
    • All fees prior to loan disbursement (e.g. application or processing fees) must not exceed 10% of the principal of the loan.
    • Legal costs ordered by the court for any successful claim by the moneylender for the recovery of the loan.

    In addition, the total charges imposed by a moneylender on any loan cannot exceed an amount equivalent to the principal of the loan. For example, if you took a loan of $5,000, all charges imposed by the moneylender – interest, late interest, establishment fee and late payment penalty must not be more than $5,000.

    How do personal loan processing fees work?

    Lenders may have different ways of charging a personal loan processing fee. While some charge it upfront, others may roll it into your loan. There are three ways a lender might do this:

    • Upfront payment. You’ll have to pay the processing fee after approval of your loan. Either prior to funds disbursal or charged together with your first loan instalment.
    • Deduct it from your funds. Here, your lender subtracts the processing fee from your funds before you receive them. You won’t get the same amount you were approved for, but you also won’t end up paying interest on a higher balance.
    • Add it to your loan balance. Though less common, you might come across a lender that adds your processing fee to the loan principal. You’ll receive the same amount you were approved for, but you’ll end up paying interest on a larger loan amount — which can increase the overall cost of your loan.

    Let’s take a look at two examples.

    Say you take out a loan of S$10,000 with a 4% processing fee.

    If your lender adds it to your loan balance, you’ll have a loan principle of S$10,400 — even though you’ll only receive S$10,000. Pay that loan off at a 10% interest rate over five years and you’d pay a total of S$2,858.16 in interest, not including the S$400 establishment fee. Overall, your loan will cost you S$3,258.16.

    But if your lender subtracts your processing fee from your funds, you’ll only receive S$9,600 but pay off a loan balance of S$10,000. Here, you’d pay a total of S$2,638.30 in interest. That’s about a S$620 difference.

    Many borrowers don’t understand how processing fees work and are unpleasantly surprised that they didn’t receive the full amount they expected. To avoid this, always understand the fees involved before agreeing to a personal loan.

    What processing fee can I expect?

    Your credit score and loan amount may factor into the processing fee you’re offered.

    These are the processing fees you can expect from some of the banks:

    BankProcessing fee*Learn more
    DBS1% processing fee
    Go to DBS's website
    POSBBased on your personal credit and income profile.
    Go to POSB's website
    HSBCS$88
    Go to HSBC's website
    CitibankS$0
    Go to Citibank's website
    Standard CharteredS$0
    Go to Standard Chartered's website
    UOBN/A
    OCBC2% (or $200, whichever is higher)
    Maybank2%
    Bank of China3% (or $150, whichever is higher)
    CIMBN/A

    *Take note that the processing fees stated are accurate at the time of writing (May 2020) and can change at the banks’ discretion.

    Additional costs to consider

    Personal loan processing fees might have a sizable impact on how much your loan costs. But that’s not the only cost you need to consider. The easiest way to compare the total cost of a loan is to compare the effective interest rate (EIR). This is an expression of the interest and fees you’ll pay over one year.

    Since EIRs are by the year, make sure you’re comparing loans with similar terms. A lower EIR on a seven-year loan could cost you more than a higher rate on a five-year loan.

    But even with the most competitive EIRs, you still might want to see how it breaks down.

    Interest

    Interest is a percentage of the loan amount that your lender charges periodically. The interest rate typically refers to the annual interest rate. Some short-term lenders charge monthly interest rates, however, which applies each month you take to pay back your loan.

    Other common fees

    • Application fees. While not as common as processing fees, some lenders may charge a fee for processing your application.
    • Late fees. Many lenders charge a flat fee of between S$75 to S$100, or a percentage of the amount around 4% of your repayment if it is received past its due date.
    • Non-sufficient funds (NSF) fees. If payment otherwise doesn’t go through, lenders may charge an NSF fee. This is typically at least S$15 and is often added to the amount due.
    • Prepayment penalties. You might come across a lender that charges a penalty if you want to pay your loan off early. Prepayment penalties are typically equivalent to what you would have paid in interest if you paid off the loan according to your term.

    How personal loan fees work

    How to find a competitive loan

    Your loan’s total cost isn’t the only thing you should consider when comparing lenders. You might also want to look into these factors to find a loan that’s right for you:

    Eligibility. Before you apply for a loan, make sure you’re able to qualify. Many lenders impose a minimum income, debt-to-income ratio requirements and expectations on your creditworthiness.

    Monthly payments. How much you owe each month might be even more important than the loan’s total cost since it’ll affect your monthly budget. Generally, the longer the loan term, the lower your monthly payments — but the more you’ll pay in interest overall.

    Loan amounts. A loan with no processing fee won’t do you much good if the lender doesn’t offer the amount that you need to borrow. Due to the MAS borrowing limit, you can usually qualify for an unsecured personal loan up to 4 times your monthly salary if your annual income is S$20,000 or more. If you earn $120,000 or more per year, you may borrow up to 10 times your monthly income. However, not all providers will offer you amounts to maximise your allowable limit.

    Turnaround time. If you need money fast, speed is going to be a top priority. Many online lenders offer next-day financing, though you might not find the most competitive rates.

    Bottom line

    Understanding how processing fees work can save you from the nasty surprise of getting less money than you thought you would or an inflated fee. If a provider charges a processing fee, know that there’s no harm in trying to negotiate it down. Some lenders may not charge processing fees or any fees at all.

    Visit our guide to personal loans to learn more about your options.

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