Personal loans are a go-to option for many Australians when covering costs like home repairs, medical bills or debt consolidation. Their fixed terms and regular repayments make budgeting easier and provide a clear repayment timeline. But while the interest rate is often what borrowers focus on, it’s just one part of the total cost.
There are several hidden costs in personal loans that can catch borrowers off guard. These extra charges, often listed in the fine print, can significantly increase the amount you repay if not factored in early. This guide outlines the most common hidden fees, how to avoid them and what to look for when comparing personal loan options.
Why hidden fees matter
When comparing personal loans, advertised interest rates don’t always tell the full story. Some lenders offer a low headline rate but make up for it with extra fees and charges.
For a clearer picture of the total cost, always check the comparison rate. This includes both the interest rate and most standard fees, giving you a more realistic view of what you’ll pay over time.
Common personal loans hidden costs
Here are some typical hidden costs that come with personal loans:
1. Application or establishment fees
Many lenders charge a one-time fee to process your application and set up the loan. It can be a flat amount or a percentage of the loan value. This fee is usually added to the total loan balance.
2. Monthly or annual fees
These fees are charged to maintain your loan account. They may seem small, but they add up over time. A $10 monthly fee, for example, becomes $600 over a five-year term.
3. Early repayment or exit fees
If you decide to pay off your loan ahead of schedule, some lenders charge a penalty for doing so. These fees reduce the benefit of paying early and can offset the interest savings.
4. Late payment fees
Missing a repayment by a few days could result in a late fee. These fees vary by lender and may be charged in addition to interest accrued.
5. Direct debit dishonour fees
If your scheduled payment fails because of insufficient funds, your lender may charge a dishonour fee. This is separate from any late payment fee and can compound the issue.
6. Add-on products or bundled extras
Optional services like credit insurance or account cover are sometimes added to your loan by default. These extras can increase the total cost and may not always be necessary.
Being aware of these personal loans’ hidden costs puts you in a stronger position when comparing offers. It also helps you spot deals that appear low-cost but include several extra charges once the loan is underway.
How to avoid unnecessary fees
To minimise or avoid hidden costs in personal loans:
- Request a full fee schedule before committing.
- Compare comparison rates rather than relying on the interest rate alone.
- Use a loan calculator like our personal loan repayment calculator to understand real costs.
- Only borrow what you need, as fees often scale with the loan amount.
- Review your credit profile, since some lenders set rates based on credit worthiness.
- Check alternatives, such as the pros and cons of a balance transfer vs. personal loan.
It also helps to assess the loan structure. Read this article on secured and unsecured personal loans to understand which option suits your situation.
Choose a lender that’s upfront
Transparency is key when choosing a lender. Check the FAQs and customer reviews to see how clearly fees and terms are explained. Look for providers that state their fees openly and provide realistic timelines and costs.
Use an personal eligibility calculator to get a personalised quote without impacting your credit score. This allows you to see your estimated rate and repayment plan before proceeding.
Experience zero hidden costs in personal loans with NOW Finance
At NOW Finance, we believe borrowing should be simple and transparent. That’s why we don’t charge:
- Upfront application or establishment fees
- Ongoing monthly or account-keeping fees
- Missed payment or dishonour fees
- Early repayment or exit fees
You can learn how it works, see why NOW Finance is different, or explore why we’ve been recognised by the Mozo Experts Choice Awards for customer value. With a straightforward application process and clear pricing, we help you reach your financial goals.
Disclaimer: This article contains factual information only and does not constitute financial advice, a recommendation, or an offer of any kind. It has been prepared without considering your personal objectives, financial situation, or needs. Before taking any action, you should assess whether the information provided is appropriate for your circumstances. If this article discusses the acquisition or potential acquisition of a specific credit product, you should obtain and review the relevant disclosure documents before applying. The information is believed to be accurate as at the date of publication; however, changes in circumstances after this date may affect its accuracy.
