A man hiding from hidden loan fees.

Hidden Personal Loan Fees – Identifying And Preventing Them

If you are taking out a personal loan or even considering one, you should be aware that there may be a number of hidden fees attached. Take a look at some of the hidden fees that you might encounter and learn some ways to prevent them.

Personal loans can be a great tool for many reasons. They can help you pay for emergency expenses, household projects or even fund the wedding of your dreams. That being said, people are often surprised when they run into hidden fees attached to the loan. In this article we will discuss some of the more common hidden fees that you will encounter and ways to avoid paying them.

Origination Fees

These can be quite sneaky and very often catch people off guard. Most lenders are upfront about their loan origination fees but others can be a but sneaky and bury the terms in the fine print of the loan.

An origination fee is a fee charged by a lender or loan broker to initiate a loan. It can easily be hundreds of dollars. Lenders who charge these fees may add them on top of the loan or may deduct the fee from the loan itself. For example, you may have a loan for 600 dollars with a 100 dollar origination fee. They then disburse 500 dollars to you, keeping the 100 dollars as their fee. A bit sneaky.

To avoid paying an origination fee, be sure to read the fine print. If you find one, try to negotiate with the lender for a reduction or elimination of the fee.

Prepayment Penalties

You do not see this one too often anymore, but be aware that some lenders try to sneak this one in there.

The idea is that a lender expects to make a certain profit when you carry a loan to term. If you pay the loan off early, they make less money. Some will try to sneak in a prepayment penalty to compensate themselves for this lost income.

To avoid this hidden fee you should both read all of the loan documentation and ask the lender if there is a prepayment penalty. Try to get their answer in writing, email for example, so you have proof just in case you decide to pay off your loan early.

Late Payment Fees

Is this a hidden fee? Yes and no. While it is pretty common knowledge that if you make a payment late, you will be charged a fee, some lenders get carried away. Many, especially subprime lenders, will charge an exorbitant fee that is frankly unreasonable. Be aware of what your lender charges for late payments.

Fortunately, avoiding these fees is incredibly easy. All that you need to do is pay your bills on time. If this is an issue for you, set up automatic payments and/or bill reminders.

Loan Insurance Fees

Many lenders try to sneak in loan insurance into the loan. They claim that it provides safety for the borrower which in a way it does. The problem is that the loan insurance is often very pricey and more times than not, not worth the cost.

Once again, to avoid these fees, simply check your loan terms and make sure they are not included. Also, be careful when clicking boxes on loan forms. Credit card companies, for example, are notorious for trying to sneak in a monthly insurance fee.

Summing It Up

While personal loans can be a valuable tool to consumers, attention must be paid to the details. Before you sign the paperwork on that new loan of yours, be sure to do your due diligence. Otherwise, you might find yourself stuck in a loan with fees that you never counted on.

Posted by
James

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.