Application for a loan, whether secured, unsecured, a hire purchase agreement or mortgage, invariably has charges associated with it. The type of loan may determine which fees are applicable to the applicant. Charges are there to cover admin costs, valuation costs, commission payments and ongoing interest charges, which are calculated according to the loan balance and final settlement fees at end of term.

What are the different loan charges?

Interest is the first and foremost charge, made by the company lending you the money. Interest is added at the outset of the loan, either as a lump sum, or added as an ongoing charge, daily, monthly or annually, depending on the amount loaned.

If you take a secured loan, an assessment needs to be made of the asset put up as security. This usually requires a charge.

Other charges include redemption admin fees, or redemption penalties. This type of charge usually occurs if the loan is repaid prematurely, and could reduce towards the end of the term.

Which charges will be applicable to you?
The loan company lending you the money should provide you with an illustration of which charges applies to your situation. This illustration should contain details about your loan, interest calculation and all charges applicable. Upon agreement of the loan application, you should receive a loan schedule from the company (one copy of which you sign and return). The document should disclose the full terms and conditions of the loan and additional charges applicable to your scenario.

Any additional charges?
If you stick to the terms and conditions of the loan as set out in the original agreement, you should be free of having to make additional payments. However, monthly repayments could change if a variable interest rate applies.

If you do not maintain your repayments throughout the repayment term, additional fees could be added.

Additional charges may also apply if you alter the original loan contract. You may wish to extend the loan repayment term, or need to enlarge the loan, or perhaps repay the loan much earlier than the repayment term requires. The contract you signed with the loan company should cover any such scenarios. Therefore, you need to be sure you understand the contract before signing it.