It’s not uncommon for a new borrower to take a bank loan at face value, with all its advertised figures: interest rate, monthly repayments, loan quantum, e.t.c. But there’s often more to a bank loan than what meets the eye. Particularly fees, and charges that can significantly affect the long and short term cost of a loan.
Lendingpot aims to help consumers get the financial products they deserve, so in this article, we’ll be decoding the hidden fees in your typical bank loan so you can make an informed decision regarding your loan.
A processing fee is a charge levied by banks to cover the administrative costs of processing, evaluating and sanctioning a loan. The amount varies from bank to bank, but usually costs about 0.5% to 2.5% of the loan amount. This fee is typically deducted from your initial loan amount so don't be too shocked when you only receive $990 for a $1,000 loan as the difference could be that 1% processing fee charged.
Legal fees are generally specific to complex loan facilities, particularly those that involve collateral where a lawyer is needed to review and draft loan documentation. These may include the cost of conveyancing, which is basically the process of transferring a property title to a buyer. Legal fees range between S$500 to S$5000 depending on the nature of the loan. It’s worth noting, though, that some banks subsidise the cost of legal fees. These subsidies are usually offered on loan amounts that are more than $500,000 as anything lesser would not make sense for banks to cover. Find out if you qualify for subsidies for your property refinance here.
Valuation fees are another type of cost associated with bank loans involving collateral. As the name suggests, it’s a fee charged to assess the market value of the collateral, usually property. The cost of a valuation can run anywhere between S$200 - S$500 depending on the asset.
Despite being practical, when a borrower pays a portion of their loan ahead of time, they are liable to incur an early repayment penalty, which can range between 1% to 3% of the remaining loan balance. This is to compensate the bank for the loss of interest it would have earned had the loan run its tenure.
Late repayment fees are not entirely uncommon but bear mentioning given that they influence the cost of a loan. They are charged when a borrower makes a late payment on their loan. Late payment fees come in two main types, min flat fees or a percentage of the unpaid amount (whichever is higher). Even if you do not have the ability to make a full repayment of outstanding, try your best to pay the minimum amount. This way, you are only charged a late interest fee and not a late fee which could be substantial. For example an outstanding repayment of $200 that is missed could incur a $100 late fee which is essentially 50% of the total amount. Instead if the minimum payment is $50, you will only need to pay 24% p.a. (or 2% per month) of the late amount of $150. If you pay it the next month, the interest charged is only 2% of $150. This is just $3 compared to $100.
Some banks charge an annual fee to cover the cost of maintaining your loan account. This varies between bank to bank, however some have been known to waive the fee to attract, retain or support their customers.
Commitment fees are charges levied by banks for setting aside funds for a borrower's use. This is typical to credit lines or undisbursed loans where no interest can be charged until the funds are withdrawn. The charges associated with commitment fees vary depending on the bank in question.
Debt restructuring is a process through which borrowers negotiate with lenders to make changes to existing loan terms so as to better manage repayments. Some banks charge a restructuring fee for this service, which varies depending on the bank. You may be able to eliminate the fee, especially if you’ve been a long-term customer or in good standing with the bank.
A title deed safekeeping fee is associated with property loans. It is charged by some banks for the purpose of safely storing a property title deed for an extended period after a loan has been fully paid.
A document duplication fee, also known as a document retrieval fee or statement retrieval fee is a charge that some banks levy for the administrative costs of reproducing documents related to a loan. This fee can set you back anywhere between S$0 to S$50 per document or more depending on the bank.
We hope by sharing this information, you can be better equipped to get a better estimate of the true cost of your loan. Keep in mind that these fees and charges might not specifically apply to your loan or your bank. We recommend reading the fine print. Don’t be afraid to ask questions. When in doubt, consult an expert for assistance. And if the loan terms are not to your liking, you can always explore other alternatives.
Lendingpot makes this easy, with a single application, you gain access to the 20 reputable loan providers on our platform, each vying to offer the most competitive offer.
Register today to begin your application.
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