When you’re comparing loan options, it’s important to understand the fees and charges that may apply. Along with the interest rate, loan fees can affect the overall cost of borrowing, so taking the time to understand them before you apply can help you compare products more effectively.
From establishment fees to early repayment fees, different lenders may charge different fees depending on the loan product. This guide explains some of the more common loan fees you may come across and what they mean, so you know what to look for when reviewing a loan contract.
Application or Establishment Fees
One of the first fees you’ll come across when applying for a loan is the application fee, sometimes also called an establishment fee. This is a one-time cost to cover the administrative work involved in setting up your loan.
What exactly is an establishment fee? It can vary depending on the lender and the type of loan you’re applying for. The establishment fee generally covers the administrative work involved in assessing your application, conducting credit checks where required and setting up your loan. Not every lender charges this fee, so it’s worth checking the loan documentation before applying.
If this is your first loan and you find yourself asking, How Does Getting A Personal Loan Work? Read our basic rundown to understand the application process in more detail. You might even find our Personal Loan Application Checklist handy for information on what to expect when applying for a personal loan.
Service or Monthly Fees
Some lenders charge an ongoing service or account-keeping fee to help cover the administration of your loan throughout its term. Depending on the lender, this fee may be included in your regular repayments or charged separately.
While these fees may seem small on their own, they can contribute to the overall cost of your loan over time. That’s why it’s important to look beyond the interest rate when comparing loan products and consider any ongoing fees and charges that may apply.
Before accepting a loan, take the time to read the loan contract carefully so you understand exactly what fees you’ll be charged and when they’ll be payable. Having a clear understanding of the total cost of borrowing can help you make an informed decision.
Late Payment Fees
We get it, sometimes life gets in the way and you might miss a scheduled loan payment. This is when a lender is likely to impose a late payment fee which can add up quickly if you miss multiple payments. Late payment fees vary between lenders and are generally outlined in the loan contract.
To avoid late payment penalties, why not make life easier by setting up automatic payments or reminders? If unexpected financial difficulty prevents you from paying on time, reach out to your lender as soon as possible. Some lenders offer hardship arrangements or waivers under certain circumstances. If your credit or loan repayments are getting out of control, here’s how to get help from moneysmart.gov.au.
Early Repayment Fees
If you’re in a position to repay your loan ahead of schedule, it’s worth checking whether your lender charges early repayment fees. Some lenders apply these fees, particularly on certain fixed-rate loans, to recover costs associated with ending the loan early.
Rapid Loans does not charge early repayment fees on its secured personal and vehicle loans, so borrowers can make additional repayments or repay their loan early without additional early repayment costs.
Exit Fees
An exit fee can come into play when you close your loan account, either because you’ve paid off the loan balance in full or you’re refinancing with another lender. This fee is usually a flat amount but can vary depending on your loan terms and lender policies.
Some loans may include exit fees or discharge fees when the loan is closed or refinanced, while others do not. Before refinancing or switching lenders, check whether any fees apply so you can understand the overall cost of changing loans.
If you’re considering switching lenders or paying off your loan early, ask your current lender if an exit fee will apply. Knowing about exit fees upfront can help you decide help you understand the costs associated with refinancing or closing your loan.
Document Preparation Fees
Another fee you might encounter is the document preparation fee. Some lenders include document preparation costs within their establishment fee, while others may disclose them separately. Whether this fee applies will depend on the lender and the type of loan.
Understanding the Full Cost of a Loan
Taking the time to understand loan fees can help you compare different lenders and gain a clearer picture of the total cost of borrowing. Before applying, read the loan contract carefully and make sure you understand any interest, fees and charges that may apply.
If you’re considering a loan with Rapid Loans, our team can provide information about our loan products, fees, repayment options and application process.
This article is general information only and does not constitute financial or credit advice. It does not take into account your personal objectives, financial situation or needs. When you apply for a loan with Rapid Loans, your application will be assessed against our credit eligibility criteria. All applications are subject to approval. Terms and conditions, fees and charges apply.