Not to be confused with an origination fee, an application fee is a small, up-front cost (usually $25-50) some lenders charge to review your personal loan application. Prepayment penalties help the lender recoup some or all of the interest charges they'd otherwise lose if you pay your loan off early. Lenders make their money on monthly interest charges, so if you reduce the number of payments they receive, you're effectively cutting their profit. Fees for early repayment are usually 2-5% of the original loan amount.Īlthough it may seem counterintuitive to be penalized for paying back your loan ahead of schedule, it makes sense from the lender's perspective. What Is a Prepayment Penalty?Ī prepayment penalty is an optional fee that some lenders impose if you pay off part or all of your loan before the term ends. For instance, if you were borrowing $5,000 with a 1% origination fee ($50), you'd receive $4,950 in net funds. Those who do usually deduct the amount from loan proceeds. Origination fees commonly range from 1-6% - sometimes up to 10% - of the loan, depending on such factors as your credit score, repayment term, amount you're borrowing, and income. What Is a Personal Loan Origination Fee?Ī personal loan origination fee is a one-time, up-front charge your lender may assess to process and underwrite your loan and pay out the funds. In addition to standard terms and conditions, the loan agreement will outline required and optional fees you may have to pay.
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