What Fees make up your average Loan Repayments?

Mar 07, 2016
Author: Ean Barnard

The average loan of today has many types of fees when it comes to loan repayments. Fincheck is here to shed light on the types of fees you can expect when you are repaying an online loan.

Online loans are repaid in monthly instalments know as Loan Repayments

These monthly instalments may consist of many types of fees. Some of these fees have a correlation.  As the one increases over time, the other one will decrease with the same amount. This change of both positive and negative in these fees means the effect of the one negates the effect of the other. In plain English – the monthly instalment of a loan will remain the same over the payback period of the loan. This is however subject to the fact that you will not fall behind on payments.

Here follows a few types of fees that you can expect from typical loan repayments.

Initiation Fee

Credit providers are legally allowed to charge you a fee to initiate the pay out a loan. This fee is a once off fee at the start of the loan.

Capital Instalment

This fee consists of the repayment of the lump sum you received as the loan. This will obviously be spread out over the payback period of the loan agreement in the form of the loan repayment.

Interest

There is an interest rate involved with your loan. Included then in the monthly repayment will be the interest that accumulated on the outstanding balance of the loan in that month. A finance calculator comes in handy for this calculation. This fee will get less as the balance amount of the loan decreases over time.

Transaction Fee

This is can also be referred to as an administration fee or a service fee. This is basically the cost the bank needs to cover as they process your payment.

Insurance Fee

Many banks have different names for this. It can be called a Credit Protection Plan or perhaps a Personal Protection Plan and many more names exist. This fee is to cover the insurance for your loan should you fall into a situation where repayment can’t be met. This insurance pay out is subject to the terms and conditions the credit provider includes in the agreement. Not all of the credit providers offer this service, but some of them have this fee added as a compulsory service.

Early Payment Penalty

Remember a credit provider is investing in you by lending you money. So to make the risk involved worthwhile interest is calculated on the balance of the loan. When you repay the loan in a shorter time than expected, the credit provider loses all of the potential interest that would have accumulated in the future. So to help the people “investing in you” a portion of that future interest that - is now lost - will be charged to you as a penalty. Don’t worry! You did nothing wrong. Actually, this payment habit of yours will make a great credit record! In short - this fee is charged when you settle debt earlier than expected to recover some of the lost interest fees of the future. It is therefore worthwhile to consider a loan that allows you this earlier payback.

Late Payment Penalty

When you fall behind on monthly instalments the balance of the loan grows through extra “unplanned” interest. Your monthly instalments are calculated to repay your loan over a specific time frame. When you miss payments the interest on your loan is more than originally budgeted for. So to ensure that the loan is repaid in time, you have to make up for that extra interest fees beyond your monthly instalment. A late payment penalty is used to repay that extra interest.

A loan repayment calculator will have to take into account all these different fees. Or you can just view our loan comparison page to see how different loans matchup.

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