Personal Loan Fees Explained: What to Watch For

When comparing personal loans in Australia, it's tempting to focus exclusively on interest rates. While the rate is certainly important, fees can significantly impact the true cost of borrowing. Some loans with attractive headline rates become expensive once fees are factored in, while loans with slightly higher rates but minimal fees may prove more economical overall. Understanding the various fees associated with personal loans helps you make accurate comparisons and avoid costly surprises.

Establishment Fees

An establishment fee (also called an application fee, setup fee, or origination fee) is a one-time charge applied when you first take out a loan. This fee covers the lender's administrative costs for processing your application, conducting credit checks, and setting up your account.

In Australia, establishment fees for personal loans typically range from $0 to $400, depending on the lender and loan type. Some lenders have eliminated this fee entirely as a competitive advantage, while others still charge it, particularly for secured loans where additional paperwork is involved.

The establishment fee is usually either deducted from your loan amount or added to it. If you borrow $10,000 and there's a $200 establishment fee deducted, you'll only receive $9,800 but still pay interest on $10,000. If the fee is added to your loan, you'll receive the full $10,000 but owe $10,200. Either way, you're paying for the privilege of borrowing.

Monthly Account-Keeping Fees

Monthly fees (also called ongoing fees or service fees) are recurring charges for maintaining your loan account. These typically range from $0 to $15 per month, adding up to $0 to $180 per year for as long as your loan is active.

On a five-year loan with a $10 monthly fee, you'll pay $600 in fees alone. That's a substantial sum that should factor into your cost comparisons. Many modern lenders, particularly online lenders, have moved away from monthly fees, recognising that borrowers find them frustrating and off-putting.

Always check whether a loan has monthly fees before committing. A loan with a slightly higher interest rate but no monthly fees might cost less overall than a lower-rate loan with ongoing charges.

Early Repayment Fees

Early repayment fees (or exit fees, break costs, or early termination fees) are charged if you pay off your loan before the scheduled end date. These fees compensate the lender for interest they would have earned had you continued the loan for its full term.

Under Australian law, lenders cannot charge unreasonable early repayment fees. However, for fixed-rate loans, lenders are permitted to recover their genuine costs associated with early termination. These costs can include break costs based on the difference between your contracted rate and current market rates.

Variable-rate loans typically have no or minimal early repayment fees, making them the better choice if you think you might pay off your loan early. If you anticipate a bonus, inheritance, or other windfall, factor early repayment flexibility into your loan selection.

Late Payment Fees

Late payment fees are charged when you miss a scheduled repayment or pay less than the required amount. These fees typically range from $10 to $30 per late payment, though some lenders charge more.

Beyond the direct cost, late payments damage your credit score and can trigger default interest rates on some loans, making your borrowing even more expensive. Setting up automatic payments is the simplest way to avoid late fees entirely.

Compare late fee policies across lenders. Some offer a grace period before charging fees, while others charge immediately after the due date. Some lenders limit how many late fees they'll charge in a given period.

Redraw Fees

If your loan offers a redraw facility—allowing you to access extra payments you've made—some lenders charge a fee each time you make a redraw. These fees can range from $0 to $30 per transaction.

A redraw facility can be valuable, providing emergency access to funds while your extra payments continue reducing your interest. However, if you plan to use this feature frequently, seek out a loan with no or low redraw fees.

Loan Variation Fees

Some lenders charge fees for changes to your loan terms, such as switching from variable to fixed rates, changing payment frequencies, or adjusting your loan term. These fees typically range from $100 to $300 per variation.

If you anticipate needing flexibility in your loan structure, check the lender's variation fee policy. Some lenders allow reasonable changes without charge, while others treat every adjustment as an opportunity to collect additional fees.

The Comparison Rate: Your Best Friend

Australian regulations require lenders to display a comparison rate alongside their advertised interest rate. The comparison rate incorporates most fees into a single percentage, giving you a more accurate picture of the true cost of a loan.

However, comparison rates aren't perfect. They're calculated based on a standard loan amount and term ($30,000 over 5 years for personal loans), so they may not precisely reflect your situation. They also don't include all possible fees, particularly those that don't apply to everyone (like late payment fees).

Despite these limitations, comparison rates are valuable for initial loan comparisons. A loan with a 7% interest rate and 9.5% comparison rate has significant fees, while a loan with an 8% interest rate and 8.3% comparison rate has minimal fees and may cost less overall.

Calculating the True Cost

To accurately compare loans, calculate the total amount you'll pay over the loan term, including all fees. Our personal loan calculator can help with this—enter the loan amount, interest rate, term, and any annual fees to see your true costs.

Request a detailed quote from each lender you're considering. This should list all fees applicable to your specific loan. Don't be shy about asking questions—understanding the full fee structure is essential for making an informed decision.

Negotiating Fees

Many borrowers don't realise that fees are often negotiable, particularly if you have a strong credit profile or are borrowing a substantial amount. Ask lenders if they can waive or reduce establishment fees or monthly charges. The worst they can say is no, and you might save hundreds of dollars.

If you're an existing customer of a bank, leverage that relationship. Banks often offer better terms to customers with other products, and loyalty can translate into fee reductions.