A loan consists of several different costs and all of these are important to keep track of in order to be able to determine if a loan is cheap and affordable and also to be able to check so that you really want and can take your loan.
The interest rate is the biggest part and also the part that many people stare at blindly. However, there are also other important fees, such as the setup fee, which are good to keep track of.
Interest is important but not the only thing that matters
When thinking about borrowing money, it is important to review your finances and to check your monthly budget so that you can really afford to take care of the loan properly. Then it is above all the interest rate that is important and also the amortization.
The repayment is not really a cost because it is just repayment of the borrowed money. You can rather see the amortization as an investment because it leads to slightly lower interest costs next month (thus you save money by amortizing). However, the amortization is still actual money to be repaid to the lender every month and the money you have to have in your account when it’s time.
The interest rate is the big cost when you borrow. It is a percentage fee based on the remaining loan. The longer the term you have on your loan, the more you will have to pay in interest. Similarly, if you borrow a larger amount, it becomes even more payable because the interest rate is a percentage of the amount you have borrowed. In other words, it is important for the total loan cost that you get a low interest rate on your loan.
In the long run, the interest rate is of course the major and important cost of your loan, but it is not the only cost. There are also other things that you should keep in mind – such as the setup fee, notification fee and maybe to some extent also delay fees (just in case). These other fees are not that great if you knock them out over time but they are important especially when comparing different lenders to each other and trying to choose the best and cheapest loan.
The planning fee is something you should not forget
The setup fee is a fee that the lender charges for all the “work” they have with managing your loan. It is a one-time fee that you pay directly. Most commonly, this fee is undoubtedly deducted from your total loan amount when the loan is paid to you. You do not have to pay anything in advance. This is important to know when you want to avoid impostors. Those who want to be tricked usually try to get you to pay money in advance to get a loan, which then doesn’t even exist.
The size of the setup fee varies between different banks and other lenders. Typically, a setup fee is USD 400 – 600, but there are a few lenders who either have a lower fee than this or maybe higher. Given that the set-up fee may vary somewhat, it is important to consider it in its assessment when looking for the best possible loan.
If you have two lenders with exactly the same interest rate, it will be cheaper if you can get a setup fee of USD 200 than if you have one of USD 600. It may not be very big money if you think in relation to a large loan over a long period of time, which will still cost quite a lot, but it is still money for which you can make something more fun.
What is a reasonable setup fee for private loans?
Fortunately, most lenders do not have a crazy high set-up fee. It is common that it is between about USD 350 and 600 USD. The vast majority of lenders are usually around USD 500. There are also a number of lenders that have no set-up fee, but it is mainly the slightly more expensive lenders that lend private loans by slightly lower denominations that have removed it.
Most major banks and major lenders basically have a setup fee of around USD 500, but there are some exceptions here as well and it may be worth thinking about.