A personal loan may sound like a good option when you need cash but the debt you eventually take on can get extremely pricey, especially if your lender adds hidden fees to your balance. In fact, these fees can easily cost you hundreds, even thousands of dollars over the course of your repayment term.
While some loan fees are unavoidable, others can be reduced or waived with a bit of negotiation. That’s why it’s important to read your agreement properly, get your lender to confirm all costs and watch out for hidden fees in your personal loan contract.
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Although most loan fees aren’t actually hidden from you, it’s not uncommon for the lender to disguise them within the fine print of your agreement and you might not realize until it’s time to pay. So, look out for these “hidden” personal loan fees:
When you apply for a personal loan, the lender may charge a fee to handle your documents. Although this fee is relatively low compared to larger credit products, like mortgages, it can still cost over $100, unless your lender waives or reduces it.
If you can’t find a good lender, a credit brokerage may be able to help you out. However, if you hire a third-party business that isn’t being paid by the lender or making a commission, chances are you’ll have to pay a flat, one-time fee once you’ve officially accepted a loan contract.
Some lenders also charge for credit checks and the preparation of documents. Similar to the application fee, processing is usually a flat fee of around $100 (added to your final balance). Luckily, not all lenders charge processing fees and many are open to negotiation if you agree to a purchase.
Banks and other lenders often hire underwriters to assess the risk they’re taking when approving potential borrowers. If that happens, another flat fee may be added to your balance. That said, this fee is usually no more than $100 and will be removed from your total funding amount.
Common with real estate financing, many lenders and brokerages charge closing fees as their commission. Like other personal loan fees, closing costs add up to about $100 – $200 and are generally added to your monthly payments or deducted from your loan amount.
As long as your personal loan is active, your lender might charge a monthly fee or a percentage of your loan to manage your debt. Sometimes called “loan service”, “ongoing monthly” or “online connection” fee, many lenders are willing to negotiate here too.
Otherwise known as a “disbursement” or “administrative” fee, origination is what lenders charge to process your application and deposit your personal loan. Normally, the fee ranges up to 8% of your loan amount and will be deducted from your funds or dispersed across your payments.
If you miss too many loan payments and default, your lender might hire a collection agency to recover what’s owed, which can cost several hundred dollars. Afterward, they may charge you a flat fee or a percentage of your debt as compensation.
If you pay your personal loan with physical cheques, some lenders will charge a small fee of about $5 each time you use this method. There might also occur if you request your loan funds by cheque. Don’t worry, you can avoid this fee with autopay or direct deposit.
Some lenders offer loan insurance, which covers your debt if you can’t afford it. This fee is usually small and gets added to your payments. Watch out! If your lender claims that insurance is mandatory, charges it to your loan without asking or demands payment in advance, walk away!
If your personal loan has a long term, your lender might charge around $100 yearly to maintain your account. Thankfully, annual loan fees can also be reduced or waived with the right amount of negotiation.
Before you buy a personal loan, it’s important to research your potential lender, read your agreement carefully, then ask them about the associated costs and whether they can be reduced or waived. Remember, even legal businesses have clever ways of pinching pennies and charging you hidden fees.
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Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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