Before settling for a loan, it is important to understand the attractable fees, including the upfront costs of a personal loan that accompany the figures you are looking for. With this knowledge, you will be able to choose a bank with the most convenient interest rates and the appropriate pay period. When it comes to personal finance, there real always fees incurred in almost everything. A personal loan is not an exception—you will have to pay some fee that may add up to hundreds of dollars to get the loan. The costs always vary depending on different factors like the type of lending company or bank, the interest rates, total loan amount, and repayment period.
As well as the costs it is important to understand the on-going payments you will have to make after you get approved.
Upfront Costs of a Personal Loan
An application fee constitutes the charges made on processing, lender reviews, and document preparation i.e. the total cost of putting the loan together for you. Personal loans always have lower application fees, which may charge up to $100. They are usually paid during the application and are non-refundable.
When deciding on a broker or a service to connect you to the lending company, you will have to pay convenience fees. The fees always arise in the case that the lender is not paying the broker or if the broker is not making any commission. Most connecting services are free; however, if you are charged, it would be a flat fee paid only after the loan applied has been approved.
A closing fee includes the commission of the lender, the brokerage fee, or any other fees associated with the loan application process. Although it is common in real estates, some personal lenders have this type of fee which is usually rolled into the monthly charges of the loan taken. It could amount to or exceed a hundred dollars.
Most lending companies and banks do not often charge closing fees. In case yours does, it is necessary to negotiate or calculate if the cost concurs with the total amount given.
When applying for a loan that is not to be funded immediately, it is more likely that you will incur a commitment fee. This fee is usually meant to include the interest that the loan you are given could be attracting. Commitment fees may be a fixed percentage of the disbursed loan amount or a flat fee. To avoid incurring this cost, it is necessary to start funding the loan immediately.
Documentation preparation fee
This is a fee that may be charged to offset costs of processing the loan or drafting the loan documents. This may include the specific terms of the loan, application process, or any other forms to close the loan agreement. Being a flat fee, it is usually taken from the loan applied.
Similar to the application and document preparation fee, this cost is typically charged to cover the underwriting and credit checks charges. A processing fee is always a flat fee of the total loan approved. Since some lenders do not charge this type of fee, it is possible to negotiate it with your lender. Prior to start any processing or commit to anything, make sure to understand your monthly payments.
Underwriters of personal loans are individuals who assess the level of potential risk that the lender is taking with a particular borrower. The underwriting fees are meant to cover the assessment cost and are usually rolled into other charges including document preparation or processing fees. Not all banks have underwriting fees; thus, it is possible to negotiate it down with your lender.
Credit insurance fee
Often, one may be offered credit insurance upon the intake of personal loan. The coverage is meant to help you file claim that covers the missed payments resulting from hardship or unexpected tragedies. It is a monthly payment that is added up to the total repayment amount.
Commonly referred to as an establishment or disbursement fee, origination fees can be rolled into the monthly repayment costs or taken from the amount funded. It helps in the coverage of any costs associated with the application process. The origination fee is usually assessed as the percentage of the total amount of loan applied.
It is important to compare the upfront costs incurred on a personal loan offered by various lending companies or banks.