Four Fees To Watch Out For When Applying For A Personal Loan
If you need to pay for a large expenditure, such as a new recreational vehicle or a home improvement project, a personal loan is one way to do so. However, as you shop for personal loans, there are a few fees and expenses that you need to watch out for. Make sure to take these fees into account when comparing loans from different lenders. Here are four common fees you will encounter when shopping for loans.
1. Loan Origination Fee
A loan origination fee is a fee that you pay when you take out the loan. It is equal to a specified percentage of the amount that you borrow. For example, if the loan origination fee is 3 percent of your loan amount and your loan is for $5,000, this results in a loan origination fee of $150 ($5,000 multiplied by .03).
Loan origination fees increase the overall cost of your loan. If you pay the loan off early, the fee is not refunded.
2. Loan Insurance
Loan insurance is an optional expense that you will encounter when applying for personal loans. In the event that you are disabled or lose your job, the loan insurance will kick in and pay your loan off for you. The price of loan insurance is usually a certain price per dollar amount of your loan.
Assume that your loan is for $5,000. The cost for loan insurance is $.85 per $100. For your loan of $5,000, this results in a monthly loan insurance premium of $42.50 (($5,000/100) multiplied by $.85). Most borrowers find that disability insurance and life insurance are more affordable ways to ensure they can pay their loans off in the event of their death or disability.
3. Prepayment Penalty
A prepayment penalty is a charge that you have to pay if you pay the loan off ahead of schedule. It may be a fixed dollar amount, or the lender may have a chart that it uses to calculate the amount of the penalty. If you want to pay some of your debt off ahead of schedule, always take any prepayment penalties into account.
4. Late Fees
Late fees are a completely avoidable loan expense; just make sure that you always make your loan payment on time. However, if you are concerned that you may forget to make a payment or will need to skip a payment on occasion due to cash flow problems, it is a smart decision to look for a loan with affordable late fees.
Some loans charge a one-time late fee and then give you 30 days before charging another fee. Others charge a daily fee until you bring the loan up-to-date.