Costs and Charges on a Personal Loan

By Angela Monroe - March 4, 2020

It’s really helpful to understand as much as you can about the costs and charges on a personal loan before taking out one. This will help minimise any unexpected costs or unpleasant surprises cropping up once you’re further down the line with the personal loan process.

Many people make the mistake of just looking at the simple numbers when they set about applying for a personal loan – such as the amount of money that they want to borrow.

Considering the costs and charges on a personal loan can help you to accurately figure out exactly how much you’ll need to make in repayments each month, inclusive of all fees and additional costs.

Budgeting accurately will be made much easier when you know the costs and charges on a personal loan – meaning that you’re less likely to default on the loan or be late in making your monthly repayments. If you have bad credit, this is really important as you don’t want to risk damaging your credit rating any further.

The types of charges on a personal loan

Generally, it’s fairly easy to predict the charges that will be involved with a personal loan. Even though there are lots of different lenders out there, most of them have the same type of charges.

With bad credit personal loans, you can expect higher charges due to lenders considering you, as a borrower, to be a higher risk than if they leant money to someone with a good credit score.

You should consider charges including:

  • Establishment fees: these will need to be paid when you take the loan out
  • Interest rates: this will be charged on a monthly basis and can vary depending on a variety of factors such as your credit rating.
  • Monthly fees: check with your lender whether the personal loan has a monthly fee that must be paid on time each month.
  • Payout fee: this is a fee charged by the lender when you’re repaying the loan.

It’s really important to understand as much as possible about bad credit personal loans as there has been an increase in loan fee fraud. Don’t feel you should put up with excessive fees or charges simply because you have bad credit.

Always be wary if you’re asked to make upfront payments, especially if these involve transferring money in an unusual way. Double-check any lender that asks you to pay a deposit, insurance or administrative fee in advance of approving your loan – this is a common scam. Similarly, never feel pressurised to take out a loan – if a company is putting you under extreme pressure, step back and seek expert advice.

Cutting the costs on a personal loan

Even with bad credit personal loans, there are ways that you can minimise the costs and keep your repayments as low as possible. It’s likely that you’ll have to pay higher fees due to the fact you have bad credit, but be wary of any lender that gives you an extortionate fee or interest rates that simply seem unfair.

Here are a few ways to help cut down the costs on a bad credit personal loan:

  • Know your credit score – this is really important, and it’s quick, easy and free to do online. Once you have checked your credit score, you can apply to the right lenders for you and will have a much better idea of what to expect in terms of a loan amount. If you’ve got time, you might want to delay your application to give yourself a chance to improve your credit score.
  • Find the right lender – there are lots of lenders who specialise in helping people with bad credit. By using a lender who specialises in bad credit personal loans, you’ll be getting direct access to the people who can help you most effectively and will avoid getting multiple rejections from banks or financial institutions who have set criteria for lending.
  • Budget carefully – think about whether you can cut down your spending in other areas to save some money to direct to paying back your loan. You need to make sure you always pay your bad credit personal loan repayments in full and on time to avoid damaging your credit history further. Don’t take out a bad credit personal loan that you can’t afford to pay back – however much you think you may need the money in the short term.
Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.


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