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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan charges and loan fees

Loan Charges and Loan Fees:
What You Need To Know

A key factor when deciding which loans are best for you is to consider the different loan charges and loan fees that lenders impose on you. Some of these loan fees are transparent while others are more hidden. It is wise always to read the small print about loan charges religiously before signing any loan agreement.

APR, TAR, MLR, and Base Rates

One of the most important loan fees is the APR or the Annual Percentage Rate.  Some lenders try to lure you into a deal by offering incredibly low interest rates, but only for a short period of time. Do not be taken in by this initial low rate. Instead, the figure to look at is the APR, which is a standardised method of calculating interest charges (loan charges), so that people can compare like with like. 

If you find understanding APRs confusing, it might be worth asking your lender for the TAR or Total Amount Repayable. This figure will give you a precise repayment amount over a set period.

It is also crucial for you as a borrower to understand the meaning of the term base rate.  Base rate is linked to minimum lending rate or MLR.  MLR is the minimum rate at which the Bank of England is prepared to lend to other banks. 
Lenders use the base rank as the basis on which all other rates of interest are charged. Any change in MLR will affect base rates which will in turn affect the interest rate you pay for your loan.

Arrangement Fees

Arrangement fees are loan fees charged by the lenders or loan providers as an administrative charge for setting up the loan deal. For mortgages, this loan charge not only covers the cost of arranging the loan, but also serves as a premium charge for taking up a fixed rate or discount rate loans.

Try to shop around for a loan provider who does not charge any arrangement fees or loan fees. Watch out for loan providers who charge arrangement fees which could be as much as 1% of the loan amount.

Exit or Redemption Penalties and Overhanging Lock-ins

Watch out for lenders who impose exorbitant loan charges and loan fees if you wish to:

  • Repay your loan earlier than initially agreed.

  • Exit from the loan and move to another lender or deal.

  • Switch deals or lenders after a special deal interest rate has expired. 


Express Loan Transfer Charges

Some loan providers offer an express service for those who are desperate to get their hands on the money quickly. Usually, once your loan is approved, the amount is transferred to your bank account or sent to you by cheque within four to five working days.

However, should you require the amount on an urgent basis, then you can opt for an express service where the amount is transferred directly to your bank account within twenty four hours of loan approval or less.  That said, you can be charged a small loan fee for this convenience of between thirty to fifty pounds. Unless you are really in critical need of the money, this loan charge can be easily avoided.

Payment Protection Insurance

Certain lenders require you to take out a Payment Protection Insurance or PPI before they will agree to grant you the loan. Remember that PPIs are generally not compulsory, so do not be pressured into taking one out and having to pay these monthly loan fees.  However, PPIs can come in useful if you are unable to pay your monthly loan instalment due to accidents or temporary unemployment or some kind of disability or sickness. It is crucial, however, to carefully check each policy as the terms and conditions vary. You do not want to be paying monthly loan fees and loan charges for something you may not be able to claim against.

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