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We are all aware of the hidden fees that most loans have. Hidden fees are extra charges that are pinned to the original cost of a product or a service. Most consumers expect that they will only pay for a particular charge on their purchase. There might be extra fees added to the original cost.
Hidden charges are more common in loans. These hidden fees can be a one-time fee charged by banks, cell phone companies, credit cards, lenders, and the likes. To be aware, here are the most common hidden fees you can come across if you acquire a loan.
Origination Fee
If you acquire a loan, you can come across an upfront fee, referred to as the origination fee. This fee is a payment for the administrative cost of processing your loan application. An origination fee can be a flat fee or around one to six per cent of the principal loan amount.
The origination fee is usually added to the loan you are taking. This is an unavoidable fee if you take a loan. Therefore, the best you can do here is to look for a lender that offers the most suitable annual percentage rate (APR) rather than looking into the interest rate. This is because the interest rate and the origination fee are usually included in the APR.
Underwriting Fee
This fee pays for the loan underwriters who review and verify the loan applicant's business and personal information. Lenders hire underwriters to spare you from the inconvenience of acquiring documents such as credit reports, financial documents, tax documents, and other essential documents needed by the lender.
You may notice that some lenders do not charge an underwriting fee as they have already included it in the origination fee. However, if the lender does not require you to pay an origination fee, they will charge you an underwriting fee.
Brokerage Fee
If you apply for a loan through a broker, you are expected to be charged a brokerage fee as a payment for the broker's service for sparing you the inconvenience of looking for a lender that fits your needs. The brokerage fee is charged to you if the broker that assists you is not taking any commissions or if the lender is not paying them directly for bringing in customers.
A brokerage fee is one of the hidden charges that you can avoid. If you want to save money from a brokerage fee, you can go directly to a direct lender and apply for your loan personally, or you can find a broker that does not charge borrowers a brokerage fee.
Closing Fee
A closing fee is typically associated with mortgages, but some lenders charge a closing fee for personal loans. The closing fee can be rolled out on your monthly payment, or it will be deducted from the loan itself.
You will have to search for a lender that does not charge a closing fee. Do your research and ask questions before deciding to apply for a loan to a specific lender. Additionally, you can negotiate closing fees with your lender if you can't avoid it altogether.
Commitment Fee
A commitment fee is only being charged if you applied for a loan that can't be funded right away. You may find yourself paying a commitment fee if you get in this situation. This fee aims to make up for the interest the lender could charge you for the loan amount.
It is best to fund your loan immediately to avoid paying this extra cost for no good reason. Avoid delaying disbursement to evade the commitment fee altogether. Do not apply for a loan if you do not need the money yet.
Late Payment Fee
This one should be expected every time you applied for a loan. Most lenders charge their borrowers a late payment fee for every late repayment. It can be a flat rate or based on a percentage rate. Some lenders may offer a grace period to their borrowers, so do not forget to check your lender's terms in the contract.
Avoiding this fee is obvious. If you do not want to pay for this extra charge, make sure that you pay your loan on time every time. You can also enrol in automatic payments to ensure that you are paying your obligation on time.
Some lenders do not disclose the hidden fees, but CreditNinja gives a breakdown of the fees they will charge you if you apply for a loan. You can also ask the lender about every fee they charge you anytime through their customer service, or you can personally visit their office. Asking about a specific fee before paying for it is the best thing to do.
Takeaway
Do not be unaware of these hidden fees when you apply for a loan. It is better to be aware beforehand and to know some tips on how to avoid these charges. These hidden fees can make your repayment amount higher if you do not know how to avoid them.
Author Bio
Tiffany Wagner is an experienced web content writer whose interests extends to financial analysis, banking, and finance. When not working, she spends her time reading her favorite classic novels.