Confused by loan fees? Check out our jargon-free guide
Understanding fees can help you find a better suited loan. So we've broken them all down, without any of the complicated lingo.
Sponsored by NOW Finance The only Australian lender with no fees and none of the bank. Finder exclusive: Apply and settle a home improvement loan by Dec 31 for your chance to win a $2000 Bunnings giftcard. T&Cs apply. Learn more.If you're confused by loan fees, you're not alone. There are quite a few fees that lenders can choose to charge customers, and each one seems to have multiple aliases too. Annoying.
But fear not, I've compiled a list of all the fees I've come across while researching persona loans, with easy-to-understand explanations, so you don't have to go scouring finance sites to try and figure it out.
So let's get into it.
Establishment fee
AKA: Application fee, processing fee
This is the one-off fee for setting up your loan. Think of it as covering the wages for the employees who looked at all of your documents and made all the necessary checks.
Establishment fees are often hundreds of dollars. In fact, Finder research shows that some lenders charge up to $999 for establishment fees. Ouch.
You don't have to pay this fee before your loan is settled though. Instead, it'll be rolled into your loan.
There are two ways a lender might do this. Usually, they'll add the cost of the fees on top of your loan amount. So if you successfully apply for a $5,000 loan, and the lender has a $500 establishment fee, you'd still get $5,000 in your bank account but you'd have a debt of $5,500 to pay back.
However, some lenders do things the other way and actually deduct the fees from your loan amount. So if you asked to borrow $5,000 and the lender had a $500 fee, you'd only get $4,500 in your account because the loan balance would be used to pay that establishment fee.
I know, it's confusing already. But not every lender charges an establishment fee. For example, digital lender NOW Finance provides unsecured loans of up to $50,000 and secured loans of up to $100,000, all without any establishment fee. Nice!
Account keeping fees
AKA: Monthly service fees, account management fees
These are the ongoing fees you pay for your lender to maintain your loan. They're usually around $10 to $15 a month. It's a bit like a Netflix subscription but your mates definitely don't want to share it with you.
We are seeing an increase in lenders ditching account keeping fees though, particularly digital lenders. While they seem pretty affordable on the surface, account keeping fees can add a big chunk onto the cost of your loan.
Just think, if you have a personal loan spread over 5 years, with $10 account keeping fees to pay every month, that's an additional $600 in fees. And that's before you even think about interest.
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Read more…Missed payment fee
AKA: Late fee
Late fees are pretty common in personal loans so before you take one out, think carefully about whether you can afford those repayments on a regular basis. Finder analysed 24 personal loan providers and found that highest late fee was $35 per missed payment - that's a decent chunk of money if you're already in a tight spot.
There are lenders that will work with borrowers to avoid late fees though. For example, NOW Finance has removed late fees and put hardship arrangements in place for people who are going through an extraneous change of circumstances, such as job loss or wage loss.
Of course, this doesn't mean that you can just get away with taking out a loan and never repaying it. If, after 3 months of trying to figure something out, you still haven't come to an agreement, your debt might be passed on to a collection agency. And nobody wants that.
Remember: Always reach out to your lender if you're struggling. It might be possible to come up with a solution that works for everyone and doesn't put more stress on your shoulders.
Early repayment fee
AKA: Early exit fee
Paying off your loan early should be something to celebrate, but some lenders actually charge a fee if you settle your debt early. Lame.
So why do they do this? Well, lenders make money by charging you interest and potentially monthly account keeping fees. If you pay your loan off early, they lose out on that money.
In some cases, you'll be charged a flat fee, while other lenders may calculate a unique fee depending on how much money they've lost. You can check out the early repayment fees of different lenders here.
Again, it is possible to find lenders that don't charge early repayment fees, including NOW Finance, which removed early repayment fees back in 2016.
"Our personal lending solutions are designed to help customers navigate the finance system and feel supported and empowered to make the right decisions," said David Norman, Chief Operating Officer at NOW Finance. "One of those decisions is to pay their loan off sooner, so we encourage our customers to do so by not having early repayment fees. It's simple and personal."
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Redraw fee
AKA: Redraw facility fee
If your loan comes with a redraw facility, it means you are able to take back any additional payments you have made into your loan.
So, let's say you have a loan of $30,000 to be paid back over 5 years. However, you've been making extra repayments and are ahead of schedule. Suddenly, you need $1,000 for emergency car repairs, but you've directed all of your spare cash into your loan repayments. If your loan came with a redraw facility, you would be able to redraw the additional payments you had made.
Now, not all lenders provide a redraw facility, and even if they do, they may charge a fee for the service.
The big impact
Together, fees can have a big impact on the cost of your loan and you have to take them into consideration alongside the interest rate. Luckily, there's an easy way to do that.
Look at the comparison rate instead. The comparison rate takes into account the interest rate alongside any fees that the lender might charge.
"Comparison rates reveal the real cost of a loan," said NOW Finance COO David Norman. "If a comparison rate is bigger than the interest rate, your loan repayments will cost you more than expected and your overall loan cost will be inflated."
However, with no hidden fees, the comparison rate and interest rate are the same for personal loans settled through NOW Finance.
"We believe people deserve a simple, transparent and flexible product to achieve their goals and maintain financial control," said David. "So introducing no fees seemed right to us."
Get a no-fee personal loan through NOW Finance
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