When you’re preparing to submit a loan application, the lender may inform you they charge a loan application fee. These fees reduce out-of-pocket processing costs for the lender and make their borrower transactions more profitable.
Loan application fees are common for mortgages loans, auto loans and personal loans. But they aren’t universal. Not all lenders charge fees, and you may even be able to negotiate them down before you submit your application.
How do Loan Application Fees Work?
Lenders typically charge loan application fees when you submit your application (in the case of a mortgage, the fee may be rolled into other costs and the borrower pays it when they close on the sale of the home). These fees are typically nonrefundable.
The lender should disclose any loan application fees they charge before you submit your application. These fees are completely legal, but you should be wary of any lender that isn’t completely transparent about fees or demands payment upfront.
Application fees vary depending on the lender and the type of loan. Often, they are calculated as a percentage of the loan amount. Larger loans, like mortgages or home refinancing loans, can be hundreds of dollars.
Do You Have to Pay a Loan Application Fee?
Whether or not the lender charges an application fee and how much the fee costs depends on the lender and the type of loan. Not all lenders charge loan application fees, so you should shop around with different lenders if you’re looking to avoid one.
You may be able to negotiate the loan application fee down if you have excellent credit and get the lender to reduce the fee or even waive it altogether. But as a tradeoff, the lender may want to charge a higher interest rate or extend the loan terms, which can increase the overall cost of the loan.
Prepare Your Credit Before You Apply for a Loan Application
If you’re planning on applying for a loan soon, you should start preparing your credit now. Ensure the information in your credit report is accurate and fair and check your credit score, so you know how much bargaining power you have.
A credit monitoring service can help get you ready to apply for a loan. These services provide customers with copies of their credit reports and monitors changes on credit reports. So, before you apply for a loan, make sure you’re informed about the state of your credit.