What are the costs that come with getting a loan?

Getting a bank loan is a necessary part of anyone's financial journey. A loan can help in getting access to meet current needs, whether it's for an investment or a lifestyle upgrade. But securing a loan also comes with necessary fees. Here are a few fees that you need to take into consideration when applying for a loan.

Much like any product or service, banks and lending institutions charge a fixed fee to make up for the costs of processing your loan application. This fee goes to credit checks and other administrative procedures they have to undertake before approving a loan application. 

Usually, banks deduct P1,500 to P2,500 from the loan amount. Meanwhile, processing fees in other lending companies and government mandated credit institutions vary. 

TIP: Consider the processing fee when deciding on how much money you want to borrow in order to assure that you have enough funds for your financial needs. 

The monthly add-on interest is a percentage of a loan that borrowers need to pay to the lenders. It’s added on top of the principal amount borrowed and is the charge that you pay to banks and credit facilities for the privilege of borrowing their money. This amount varies depending on the lender, the amount borrowed, annual interest, and loan tenure.

Lenders need to charge interest in order to compensate for the risks they take by letting people borrow money from them. More often than not, interest is charged monthly so that it’s easier and it won’t be too big of a burden for the borrower.

TIP: You can calculate your possible monthly installment due and interest. Just follow this computation: 

{(P x I x N) : P)} n , where

P = Approved amount

I = Interest rate per annum

N = Tenure of facility in years

N = Tenure of facility in months

Remember that every action has a consequence and this includes neglecting to pay your loan on time. Thus, if you miss any payments, you will be charged by your lender with a late payment fee. This fee could range from 3% - 8% of your overdue amount or P300 - P500 whichever is higher. 

TIP: Avoid late payment fees by setting up automatic payments to your loan on or before your actual due date.