In the past, a loan with no processing fee would have been unthinkable. The issue of processing fees has developed in recent years to a dynamic and quite lively discussion topic. In this regard, end users face the following questions when making credit decisions: Why exactly do banks charge processing fees?
What exactly are processing fees? And in what amount do they usually accrue for loans?
How can such a fee look like
The processing fee is usually a percentage of the amount that the bank requires to process a credit decision from the customer. As a rule, the percentage is 1% and up to 3.5% of the loan requested. However, the collection of a processing fee is still from a period of development in the bank consultants even before deciding on the granting of credit to an end user without PC complicated and lengthy Harry Potter requests, etc. had to provide.
The amount of work that is usually required to decide on lending has become much less burdensome over the past few years than it was 30 years ago by automating and standardizing bank standards on lending. In general, the processing fee is and will be considered as a cost offset to a credit agreement.
Processing fees – legal perspective
However, this extreme amount of time and effort, which used to be encountered, has long ceased to exist to this extent. Therefore , the banks lack conclusive arguments for the further collection of the fee. A uniform legal basis for the elimination of processing fees in the lending business, there is currently not. However, there are now a number of decisions of individual higher regional courts on this issue.
Experts speak of a gray area in the German processing fees market. Meanwhile, local credit providers, as savings banks do not want to waive the revenue stream handling fee, a number of direct banks already offer a variety of loans without these fees.
Dubious financial provider
In contrast to the concerns expressed earlier about the necessity and, above all, the basis for determining the fee by the banks, various financing experts can not understand the problem of the processing fee.
Because banks are free to set their annual effective interest rate and could, in the event of a ban on processing fees on loans, use that rate as a backdoor to continue to secure their revenues in this area. Should a bank cut its processing fee on a loan product, but increase the effective interest pa in parallel, the elimination of the fee compared to a possible increase in the interest rate would be another indicator that would be important for credit condition calculators or general credit comparison calculators.
Consumers should also be more aware of this issue as they could be confronted with hidden costs in this way. Advertisers who recommend eliminating the processing fee on their credit products would need to be compared and analyzed in parallel with the APR.
Apportionment of costs
The processing fee for credits comes only once at the conclusion of the contract . However, it is transferred monthly to the payable installment. However, in the event of early withdrawal, the amount will not be reimbursed.
In contrast, should there be credit offers, one of which contains a processing fee, but at the same time involves a lower APR and an offer entirely without a service charge, but with a higher effective interest rate per annum, should rather on the offer without a processing fee be resorted to.
Since in case of early repayment of the loan amount, the processing fee will not be refunded at the end.
For many loans, a so-called processing fee may apply. This fee is often also dependent on the exact amount of the loan and can therefore be relatively high and significantly increase the total cost of the loan. To avoid such costs, a loan can be applied for without a processing fee. This article gives five short tips on how to keep additional costs and fees low.
The use of the loan
For many banks, the use of money also plays a very important role in the awarding of a loan. As a result, the bank usually chooses the exact risk, so that the bank can lower or raise interest rates. Therefore, always the real reason of using the money should be stated.
In some cases, the institute may also require proof of this. In general, the interest on a loan is reduced if the bank can use a certain object, such as a flat or a vehicle as collateral. Therefore, the interest on a loan for a car purchase or for the renovation or purchase of an apartment are much lower. The bank usually remains owner of the item until full payment of the installments, whereby the customer can of course use the item himself.
Only after the last payment does ownership pass to the customer. As a result, the bank has a much higher level of security in the event of a default and thus only takes a very small risk. In general, a loan should of course only be taken if the user really needs the money and there is no other way to solve a problem.
The inclusion of a loan for your own pleasure, for example, for a holiday, is not recommended. He should only be admitted if he can really be paid back and also has a regular income, which allows this repayment.
Hidden costs, fees and penalty fees
When taking such a loan, the user should definitely read through all the conditions and study them. As a result, hidden costs or very high penalties can be detected relatively easily. Here, reviews from the Internet are very helpful, since many users can report on the experience with a bank. Thus, dubious or very expensive providers can be easily recognized. It can also be easily done a price comparison.
For this purpose, there are various comparison portals on the Internet, on which the user can specify his desired amount, the duration and the use. The comparison lists all costs and fees so that the user can compare the different providers. Thus, the suitable and especially the reputable provider can be selected. Typically, most providers charge relatively high fees if a payment can not be made.
Some banks offer a free payment break, which can be very helpful in such a case. A price comparison does not always have to keep all information up-to-date and mostly without guarantee. Therefore, the conditions should be read carefully in spite of the information given, as they can change as well.
The term and the monthly installments
The duration and the monthly installments of a loan are usually very closely related and depend on each other. These two options should always be chosen so that the customer can pay the monthly rate without much effort and can also lead a normal life from the remaining money. The rate should also be calculated in such a way that larger expenditures in case of emergencies can still be managed.
If the rate is reduced, so does the term of the loan, so that the total amount that has to be paid back also increases. With a higher monthly rate, the term and thus the total amount of the loan is reduced, as less interest has to be paid in total. The credit must always be chosen so that the monthly rate does not exceed your own budget. It should also be noted that a loan can always be terminated prematurely.
The early payment of the remaining installments, however, is usually associated with relatively high fees, so it is usually discouraged. Only a few banks offer this option for free.
The creditworthiness of the customer
As a rule, the creditworthiness of the customer also determines the interest and thus also the total cost of a loan. The higher this is, the lower the interest then demands the bank for the loan. Therefore, the customer should make sure that in the Harry Potter entries are not false data that may reduce the Harry Potter score.
In addition, a regular monthly income should be proven to increase the creditworthiness. In most cases, proof of this by a contract of employment or by the pay slips is sufficient to prove this income.
In many cases, a down payment can have a positive effect on other interest rates and lower them. The customer can also enter another guarantor who vouches for the loan. This will also reduce interest rates.
The residual debt insurance
Many banks and institutes also offer the customer a so-called residual debt insurance. This insurance acts like any other insurance as well. The customer makes a monthly contribution, which depends on the total amount of the loan. Most of the time, this contribution is already included in the monthly installment and will be deducted directly from it. This insurance prevents a high residual debt if the customer can no longer pay the loan.
This can be a serious illness or even death, which leads to a residual debt remaining, which must be paid by someone else. However, the cost of this insurance should always be weighed and compared to the amount of the loan itself. This should decide whether or not the conclusion of such insurance is worthwhile. Not always the conclusion is advisable. Especially with small loans such insurance does not always have to be completed.
In general, it should be emphasized again that a loan should only be taken if it can really be repaid with its own funds. The inclusion of a loan for your own pleasure is not recommended and should not be performed.