Common Fees Associated with Loans

When taking out a loan, it is crucial to be aware of various fees that might apply. These fees can significantly impact the overall cost of borrowing. Let’s look at some common fees you may encounter.

Late Payment Fees

 These are fees charged if you miss a payment or pay after the due date. The fee amount can be a flat fee ($30 to $60) or a percentage of the missed payment amount.  Late fees can accumulate if you continue to miss payments and that may also affect your credit score.

Early Repayment Penalties

 Lenders may impose this fee if you repay the loan before the end of the term to recoup the interest they expected to earn over the full term of the loan.  The penalty amount can be a flat fee, a percentage of the remaining balance, or a certain number of days’ interest (e.g. 180 days interest). 

Annual Fees

These are fees lending institutions charge on an annual basis on credit cards or certain lines of credit.  Annual fees administrative costs vary widely by lender and type of loan (approximately $35 to $200 or one percent of the facility). 

Origination Fees

Your financial institution may charge a fee for setting up the loan.  It covers the cost of underwriting and administrative expenses. Usually, it’s a percentage of the loan amount, such as one to five percent.

Application Fees

As the name suggests, this fee covers the cost of processing your loan application.  It can be a flat fee or a percentage of the loan amount (typically 0.25 percent to 3 percent) and varies by lender and type of loan.

Processing Fees

You may have to pay a processing fee to your financial institution once they approve your loan.  Again, this can be a flat fee or a percentage of the loan amount.

Commitment Fees

 A lender may charge a fee to hold a loan commitment for a specified period before disbursement.  This compensates them for reserving funds for you.   Typically,  it is 0.5% to 2%)of the loan amount.

Closing Costs

 If you get a mortgage, closing costs  cover appraisal, title search, and legal fees involved in finalising the loan.  It can be a significant percentage of the loan amount, typically ranging from two percent to five percent.

Other Common Fees

You may also incur:

Broker fees – To compensate the broker for finding and negotiating the loan on your behalf. This can be a flat fee or a percentage of the loan amount.

Bailiff fees – Paid to the bailiff for re-possession of asset (e.g. car).  This is typically a flat fee ranging from $300 to $500.

Property valuation fee -. Fees paid for valuing property held as security.  This can be a percentage of the value amount or a flat fee ($500 to $800) depending on the type of property. 

Tips for Managing Loan Fees

As you can see, there are many fees which borrowers potentially have to pay. To manage these extra costs, you should:

• Read the fine print
• Ask questions
• Compare offers
• Budget for fees

Understanding these fees and their impact can help you make more informed borrowing decisions and manage your loan more effectively.