In this guide, we explain common personal loan fees and charges, what they are for, and how much you might expect to pay for them.
What are the common fees and charges?
Generally, personal loans can come with a range of additional fees and charges, which can include:
- Establishment fees;
- Ongoing fees (monthly, annual, or other);
- Early repayment fees;
- Missed repayment fees;
- Documentation fees;
- Encumbrance/REVV check fees;
- Interest charges;
- Early exit fees.
An establishment fee (or application fee), is the upfront fee a lender charges for submitting your application. This fee can come as a standard rate, or as a percentage of how much you are applying for. Typically, the reason for this fee is to cover the costs involved in assessing your application and paying the staff to do so.
Typically, the two main types of ongoing fees are monthly fees or annual fees. However, there are other ongoing fees that are uncommon but still possible: semi-annual and quarterly fees.
Ongoing fees are all charged to cover the administration costs involved in managing your loan. The most common ongoing fee is a monthly fee, with around one quarter of personal loans accompanying this fee. Though there are some lenders that don’t charge any ongoing fees whatsoever.
Early repayment fees
While paying off a loan can be advantageous for you, some lenders will charge early repayment fees to try to make up for some of the lost fees and charges they would have earned. Many lenders won’t charge this fee, but there are some lenders who do. It could be helpful to find a lender that doesn’t charge this fee so that in the case you can make a repayment early, you won’t get charged for doing so.
Missed repayment fees
Missed repayment fees are avoidable if you make all of your repayments on time. In the case you miss a repayment, it can often result in a fee. Missed repayment fees are quite common for personal loans. While there are some lenders that don’t charge late fees, it is still important to prioritise making loan payments on time.
Often, when applying for a loan, you can get charged a documentation fee. This fee represents the cost of preparing your loan documents for your application, which include:
- Sufficient identification (e.g. driver’s licence, passport);
- Your bank statements;
- A current version of your credit report;
- Any other specific information based on what you are borrowing (e.g. a car loan will require registration details and vehicle details including the make and model).
While some lenders charge a documentation fee, many will encompass this fee into the one application/establishment fee. Meaning, these costs are covered without being charged two seperate fees.
Encumbrance/REVV check fees
This fee is typically only applicable to car loans, as used cars need to be checked for encumbrances (meaning there is existing finance owing on the vehicle). This is an important cost to verify because if the previous owner hasn’t paid off their car loan in full before selling to you, the lender could repossess the car from you if they default on their loan.
Again, most lenders don’t charge this fee. Plus, you can easily check the encumbrance status of a vehicle yourself for just $2 through the Personal Property Securities Register, so there’s no need to pay a lot of money for this fee.
In general, the most common and expensive charge you can expect on a personal loan is the interest charge. Interest is calculated as a percentage of the loan balance, and is essentially the cost of borrowing the lender’s money. A difference in an interest rate can often save you hundreds, if not thousands of dollars, which is why it is weighted with such importance. Often, the interest rate is used as a baseline to estimate how much extra in fees you will pay on a loan. However, the annual percentage rate (APR) is an actual indication of all fees and interest charges on a personal loan product.
To give you an idea of how much interest can make a difference to overall prices, information provided by Savings.com.au has been used to generate the following table with interest rates represented per annum (p.a):
|Interest rate||$20,000 loan||$30,000 loan||$50,000 loan|
Early exit fees
Early exit fees were banned on personal loans with variable interest rates, but are still common with fixed interest rate loans. Early exit fees, also known as break fees, are charged to represent an amount equal to the lender’s estimate of its losses incurred from you paying off your loan before your agreed loan term.
An estimation of prices
As mentioned above, you can expect to pay any combination of these fees or charges on a personal loan. The prices of fees charged will vary greatly depending on the individual lender. However, to give you a general estimation of how much you might expect to pay, the average, minimum and maximum amount of these fees is provided in the table below:
|Other ongoing fees||$5||$0||$400|
|Early repayment fees||$100||$0||$1,000|
|Missed repayment fees||$25||$0||$50|
|Encumbrance/RVV check fees||$5||$0||$100|
Information sourced from Savings.com.au