When it comes to taking out a loan, understanding all the associated fees can make a big difference! From loan application fees to exit fees, we understand that your head might be in a spin but that’s okay.
We’re here to help you understand what purpose each fee serves so you can know what to expect, avoid surprises and budget accordingly. Let’s get started by breaking down the types of fees you might come across, so you can confidently navigate the loan process.
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. Whether it’s a personal loan, a home loan or a car loan, the establishment fee typically covers tasks like reviewing your application, conducting credit checks and setting up your account. Knowing what an establishment fee is and budgeting for it can prevent any unwelcome surprises as you start your loan journey.
If this is your first loan and you find yourself asking, How Does Getting A Personal Loan Work? Read our basic rundown so you can confidently kick goals! You might even find our Personal Loan Application Checklist handy for help on ID, bank statements and more.
Service or Monthly Fees
Congratulations, your loan has been approved which now means you can book that dream wedding venue or finally take that well-deserved holiday.
You might start noticing recurring service fees or monthly account charges to help service your loan. This simply helps lenders maintain your loan account, handle transactions and provide ongoing support.
Some lenders bundle this loan servicing fee into your monthly payment, while others charge it as a separate fee. Typically, this fee ranges up to $25 per month but it can add up over the lifetime of your loan. Let’s take a look at a $10 monthly fee on a 5-year personal loan. This could total $120 per year which equates to approximately $600 over the life of the loan.
When comparing lenders, it’s important to look at service fees in addition to interest rates, as they could impact the total cost of your loan and ultimately your budget. Are your bank accounts already feeling the pinch? Check out our Tips For Managing Your Personal Finances which includes making shopping lists, writing a budget and more.
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. They’re intended to discourage missed payments and offset the inconvenience caused to the lender. Late payment fees can be fixed or based on a percentage of your overdue amount.
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
Have you hit big in the lotto or come into some unexpected but welcome cash?
You might think that paying off your loan early would be a good thing but in some cases, lenders impose an early repayment fee. We can hear your gasp from here! This fee is usually associated with fixed-rate loans where the lender charges an amount to recoup the interest they lose by not holding your loan for the full term.
If you’re considering a loan and think you may want to pay it off early, it’s essential to check if your lender charges early repayment fees. These fees may be fixed or may be calculated as a percentage of your remaining loan balance.
Good news, Rapid Loans offers secured personal and vehicle loans with no early repayment fees! You can learn more from our Frequently Asked Questions, including what loan terms we offer and when your funds will be available if approved.
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.
According to savings.com.au, shopping around for a personal loan without exit fees, rather than going directly to a bank, can give you better access to more tailored finance products.
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 whether it’s financially beneficial to make a switch or stay with your current lender.
Document Preparation Fees
Another fee you might encounter is the document preparation fee. We know it seems similar to the application fee but it actually covers the cost of preparing and managing all the necessary paperwork such as loan contracts, agreements and other legal documents.
The document preparation fee is often included in the establishment fee but some lenders may charge it separately, particularly if there is extensive documentation required. This fee can range from $50 to $500, depending on the loan type and lender. It’s important to read your contract thoroughly to understand whether this fee applies to your loan.
Understanding loan fees can help you make an informed decision and potentially save hundreds of dollars over the life of your loan. This should help you confidently approach your loan application process.
Happy borrowing!
This article is general in nature and not intended as a source of financial advice, nor does it take into account your individual financial situation.