Loan fees and penalties

While we insist that you should carefully read the loan agreement, it makes little when you read something but you can’t grasp the meaning due to industry jargon. In this section, you’ll learn more about the terms used in loan fees and penalties.

The loan fee is basically a payment that a borrower must pay when borrowing a loan. Lenders are business people and they are risking their money when lending, as such, there is always an accompanying fee. There are different loan penalties and fees that are designed to cater for the cost of lending as well as cover for the associated risks.

Since there are many types of these fees, it’s easy to get confused when you encounter the terms. However, we’ll make sure we have elaborated on each of the terms to make sure you have an easier time understanding the agreement.

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Origination fee

When issuing a personal loan, a lender may charge an origination fee. This term is derived from the cost associated with loan origination. In most cases, this includes the interest rate calculations as well as the associated paperwork.

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Prepayment fees/penalties

In some instances, certain lenders restrict borrowers from paying the loan before the agreed date. In other words, the charges are also referred to as early payment fees. Before you decide to repay the loan early, read all the details of the loan agreement. It’s important to note that not all lenders will charge the early payment fee but you will only know for sure when you read the agreement.

Insufficient funds fees

This payment will be applicable if the check you have issued can’t cover the required amount. In most cases, this happens when you’ve written a postdated check for automatic loan payment but the associated account doesn’t have enough funds to cover the entire loan and the bank declines the transaction. The fees are meant to be utilized in the costs associated with a non-applicable check. Some lenders may also refer to this fee as a returned check fee.

Check fees

This fee is applied if you choose to repay the loan via a monthly payment. However, this fee is normally within 1%-5% of the total installment amount. If you skip a payment, factoring in this fee leads to a higher cost of borrowing.

Late payment fees

More often than not, the late payment fees will always be applied if you pay your loan after the due date. The moment you commit yourself to pay the loan, it’s important that you realize there are associated costs if you can’t honor the agreement. Besides affecting your payment history, it is likely that you will be facing a 15% penalty on the total outstanding amount if you still can’t make the payment in 15 days. If you consider the consequences, you might want to commit yourself to pay before the loan is due.

Application fee

These charges are put in place to facilitate the processing of loan applications. Basically, it covers the costs associated with credit checks, application handling, as well as doing background research on the applicants.

When you are sufficiently aware of the terms used in the loan agreement, you will be better positioned to make a good borrowing choice and avoid ugly surprises. However, we wish to remind you that we don’t charge our customers anything for using our lender-matching service.