Though loans may appear to be a quick and simple lending option when first considered, loan fees can quickly lead a borrower into more debt than they can manage. Whether personal loans or larger financial products such as business loans, all loans will generally incur charges. These fees will depend on the type of loan taken out, so it is worth an applicant getting to grips with what charges are associated with certain loans before approaching banks, building societies, peer to peer lenders, payday loan companies or other lenders. Bad credit loans, for instance, will often have higher charges than other types of loan due to the perceived greater risk of lending to the borrower in such circumstances.
Loan Interest Charges
Probably the greatest loan charge faced by borrowers is the interest paid over the term of their loan. Interest is calculated by the amount loaned and can be imposed when the loan is first taken out or added as an on-going daily, monthly or annual charge. Lenders of short term loans and payday loans, for example, will usually require their customers to make a one off interest payment when they are next paid, while more long term products may provide much more flexibility.
Secured Loan Assessment Fees
Various other loan charges are often levied when customers first apply for their loan such as assessment fees. These charges will always be applicable for those taking out secured loans as a lender must make an assessment of the asset that will be used as security over the course of the loan period. Generally such fees are not applicable to unsecured loans, as no such asset has to be assessed.
Loan Redemption Fees
Furthermore, if a borrower wishes to make an early repayment of their loan, they may find themselves charged with an early redemption penalty each time they do this. However, these charges vary from lender to lender so it is always wise to shop around if taking out a loan which may be repaid early.
Loan Impairment Charges
Not only borrowers but banks and other lenders may also be hit by charges if they realise they have made a poor deal. A substantial loan impairment charge could be paid by a provider if it approves loans that are unlikely to be repaid. Loan impairment charges are basically money that is put aside by a bank in case its customers cannot make the required loan repayments, but which will leave a huge dent in a company’s profits.
Intermediary Loan Charges
Loans with no Fees
Loans with no fees attached to them are more uncommon but do exist, but the right lender must be found. A loan with no fee attached will go some way towards bringing down the overall cost of a loan as a borrower will be exempt from paying any upfront charges. With some same day loans, no fees are levied onto the customer for taking out a loan within hours of applying. Same day loans may, however, be subject to extremely high interest charges, so care must be taken when comparing the charges and fees associated with different types of loans, especially those taken out online. Indeed the ease and speed of acquiring no fee online loans means many borrowers can acquire loans without being aware of the interest payments required. A no-fee loan may not, in the long run, be the cheapest loan, so it is advisable to use a loan calculator if available to compare loans to find the best deal.
Unfair Loan Charges
A borrower will usually be free of having to make any additional charges if they stick to the terms and conditions of their loan. However, in rare circumstances, they may incur what financial experts deem to be an unfair loan charge. Unfair loan charges take many forms such as lenders imposing an additional fee without prior warning, or by mis-selling; an example of the latter is the recent scandal over payment protection insurance. Customers can attempt to reclaim loan charges they believe they have been unreasonably levied by writing to their provider if these charges have been imposed within the last six years.
Free debt advice is available for those borrowers wishing to take this route.