Loan Fees

When taking out a loan, you must consider multiple factors, including repayment terms, eligibility, and fees. The latter ones come in many shapes and forms and can become an unexpected expense that can offset your monthly budget. Although it’s not always easy to figure out how much you will potentially have to pay, you should always factor them into the cost of the loan. In this brief guide to the main loan fees, we’ll take a deeper dive into the most common types of fees and how to minimize or avoid paying them altogether.

Main Types of Loan Fees

Whether you’re taking out a personal loan or applying for a mortgage, you will have to deal with fees. Although some of them are hard to avoid, being informed about their types and particularities will allow you to minimize the cost or even avoid paying them.

• Pre-payment fees. Early repayment fees are penalized for a reason: by repaying the loan early, the lender will lose money. When browsing for a loan, it’s crucial to check for pre-payment fees, especially for more expensive loans like mortgages.
• Late payment fees. If you make the payment after the due date, the lender can charge you a late payment fee. The aim of late payment fees is pretty straightforward: the lenders want to incentivize borrowers to make timely payments and compensate themselves for additional risk.
• Exit fees. This type of fee typically goes hand in hand with fixed-rate loans, like mortgages. If the borrowers want to re-mortgage, sell the property, or excess the principal overpayment and end the loan early, they often have to deal with exit fees. The fee size depends on how much you’ve borrowed; the later you exit, the lower the fee.
• Service/Monthly fees. The cost of maintaining your loan is built into the monthly fee. Your principle remains the same, as this fee covers solely the lender’s loan management expenses.
• Application fee. It is a one-time fee that you need to pay when submitting your application. The lender charges this fee for processing and underwriting the application, which includes verifying your income, credit history, debt, assets, and other details that can influence the approval of the loan. Not all lenders charge the application fee.
• Origination fee. A mortgage origination fee is a payment for the lender’s services and is charged to process your loan application. Unlike the application fee, the origination fee is calculated based on the entire loan amount.
• Insufficient fund fee. You will be charged an insufficient fund fee if you attempt to make the payment but your account has insufficient funds on it.

To wrap it up, when browsing for a loan, it’s crucial to compare the repayment terms, fees, and other important factors between different lenders. The list presented above encompasses the main loan fees you’re likely to encounter, although not all of them will apply to a specific loan type, like a mortgage, personal loan, etc. Additionally, although some fees are universal, a lot depends on individual lenders, as some can avoid charging them altogether.