So you’re shopping for a personal loan and you’ve narrowed it down to a few options with lucrative rates. But have you factored in the fees that you may have to pay on the loan? Find out about arrangement fees, insurance cover and early settlement fees. These can increase the cost of borrowing beyond the rate. Loan arrangement fees are a very good example because they can vary from one bank to another. Another cost to consider when taking out a personal loan is insurance cover – some banks require it and some don’t. But it doesn’t end there – The early settlement fee for example applies if you decide to settle early. Whatever your reason for taking out a personal loan, compare all the fees involved and not just the rate. This will give you the real cost of borrowing. We will show you through our “Compare To Save” series, how you can compare personal loans to save money and what you need to know to go for the right product.
Arrangements fees are exactly what the name suggests: when you apply for a loan from a bank, it may charge you a fee for arranging the financing and this is added to your principal loan. Now this fee can range from a flat AED600 all the way up to 2% of the loan amount. Imagine you take out a loan of AED100,000; you could end up paying AED2,000 just in arrangement fees. When you consider this along with the rate payable on your loan, it can mean higher costs for you. Ask your bank about arrangement fees and any others that you may have to pay to find out if you are getting the best deal on your loan.
Insurance cover on the loan
When giving out a personal loan, some banks will require you to get insurance to cover for critical illness or unemployment. In a way, this safeguards the bank against default if you are unable to repay your loan. Remember though, that some banks may offer insurance cover as an option. Insurance cover on personal loans may range from 0.45% to 1.5% of the requested loan amount.
Early settlement fees
You may choose to reduce your debt commitments in the future. If your bank has early settlement penalty, you will need to factor this into the cost of taking your loan. Early settlement fees sometimes apply only if you are settling with your own cash vs refinancing. When banks tell you there is no early settlement fee, read the fine prints to understand whether this applies in ALL circumstances i.e own funds and refinancing. Early settlement fees are generally 1% of your outstanding loan amount.
Editor’s tip: you may overlook the various fees your bank will charge you when you take out a personal loan. Or you might just assume that all banks have the same fees. But the reality is that these fees can vary and what seem like small costs, can add up potentially making your loan pricier. It goes without saying that you should look at rates as well and compare these factors together before you make a decision on which product suits you best. Our personal loan guide shows you how much your instalments will be as well as how much you can expect to pay in fees. For more tips on how you can save money by comparing, follow us on twitter and check our #CompareToSave series