By Michelle Flores / Updated: Jun 24, 2019

Loan fees and penalties : Understanding the fine print

online loan fees and penalties
We always advise our borrowers to read the fine print. But what is the point of reading it if you cannot understand the complicated terms? Here are the most commonly used loan fees and the meaning behind them.

A loan fee is a payment you need to pay when taking a loan from a lender. Lenders don’t just offer money; this is a business for them and a risk, withal. Certain loan fees are used to cover the risks and the costs of the lender offering money.

There are different types of loan fees and penalties. Sometimes their different names may confuse borrowers so we will explain each of them:

Origination Fee

Some lenders issue an origination fee on personal loans. The term comes from the fact that certain costs are associated with originating a loan. Lenders include the paperwork and the calculations on the interest rate.

Prepayment Fee / Penalty

Sometimes, lenders don’t accept a loan being prepaid earlier than its due date. This is also known as an early payment fee. Always check the loan agreement before paying off your loan earlier. Not all loans are charged with prepayment penalties. To understand if your lender has such a penalty or not, please read loan offer/agreement carefully.

Check Fee

In some cases, when a borrower chooses to pay the loan through a monthly payment, he you will be charged a check fee. This fee does not exceed 1%-5% of the total amount of the installment. If for some reason the borrower cannot pay it, it will lead to a higher interest and a higher payment in the following month.

Insufficient funds Fee / Penalty

This fee is issued when a check cannot cover the payment of the loan. If a borrower has written a check for automatic electronic payments and the bank account doesn’t have enough funds on it, the bank rejects the payment. In this case, some lenders will issue this fee and use it for covering the costs of processing a non-applicable check. This fee is also known as returned check fee.

Late payment Fee / Penalty

The late payment fee applies when the payment is made after the due date. Once you have taken responsibility for repaying a loan, you must know that there are some risks if you do not pay on time the monthly payments. First of all, your history of payments might get affected. Also, you will be penalized by about 15% of the unpaid monthly amount if you fail to pay within the first 15 days after the due date. It is essential to consider the long-term consequences that will follow in case you miss a payment.

Remember: You can avoid these situations if you make your payments before the due date! Try to avoid making the payments on the last admissible day.

Application Fee

This fee helps the lenders cover the costs of processing each loan application. By the help of this fee, the lender will compensate for the time spent on handling the application, checking the credit reports and researching a customer’s creditworthiness. This fee is not refundable.

Knowing what each fee represents will make it easier for you to understand the loan agreement terms and will avoid certain fees to come as a surprise to you.

Please remember that doesn’t charge any fees for accepting your loan application and matching you with the suitable direct lender.

Works Cited

1 MoneyGuru “Don’t lose on penalties – early loan repayments”–early-loan-repayments

2 Forbes “9 Little-Known Business Loan Fees Hidden in the Fine Print”

3 Consumer Financial Protection Bureau “Why did my payday lender charge me a late fee or a non-sufficient funds (NSF) fee?”

4 TheBalance “What Is a Loan Prepayment Penalty? ”

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