Personal Loan Fees and Charges in Australia

Why fees matter when comparing loans

When you compare personal loans, the interest rate is only one part of the equation. Fees can significantly affect the total amount you repay, so two loans with the same rate can have very different costs if one charges higher fees.

The comparison rate is a tool designed to help you see the true cost. It combines the interest rate with most fees and charges over the loan term, giving you a single percentage to compare. When lenders advertise an interest rate for a fixed-term consumer loan, they are generally required to show the comparison rate alongside it.

• Fees may be charged upfront, monthly, or when you do certain things like pay out the loan early or miss a payment.
• A loan with a lower interest rate but higher fees could end up costing more than a loan with a slightly higher rate and low fees.
• Always check the comparison rate and the full fee schedule before choosing a personal loan.

Sources: Australian Securities and Investments Commission (ASIC), Great Southern Bank

Establishment fees: what they are

An establishment fee is a one-off charge for setting up your personal loan. It is often added to the loan amount and repaid over the term. Not all lenders charge this fee, and amounts vary by lender.

When comparing offers, ask whether an establishment fee applies and whether the lender may waive it in certain circumstances, such as a limited-time promotion.

Sources: Harmoney Australia, Great Southern Bank, ING

Ongoing monthly fees and annual fees

Some lenders charge an ongoing monthly account fee for the life of the loan. For example, ING describes a monthly Loan Service Fee payable from one month after funding. Others, such as Great Southern Bank, explicitly charge no monthly fee.

Before you sign, check whether a monthly fee applies and factor it into your budget. Over a five-year loan term, even a modest monthly fee can add a substantial amount to the total cost.

• A monthly fee is usually a fixed dollar amount, not a percentage of the balance.
• Annual fees are not part of the fee schedules in this research; check the loan contract for any fees that apply.

Sources: Great Southern Bank, ING

Early repayment fees

An early repayment fee, also called a break cost, is a penalty some lenders charge if you pay off more than the scheduled repayment or pay out the loan before the end of the term. It is designed to compensate the lender for interest they would have received.

This means you can pay off your loan early without penalty, which can save you money on interest.

If you think you might want to make extra repayments or pay out your loan early, choose a lender that allows this without a fee.

Sources: Great Southern Bank, ING, Plenti

Late payment fees and default charges

Late payment fees are charged when you miss a repayment or when there are insufficient funds in your nominated direct debit account on the day a payment is due.

If you are late repeatedly, a lender may take collection or enforcement action, and any legal or third-party costs incurred may be charged to your account. To avoid these charges, set up automatic payments and keep enough funds in your account on the due date.

If you do miss a payment, contact your lender as soon as possible to discuss your options. They may be able to help you get back on track before further fees or action are taken.

Sources: Harmoney Australia, ING, CommBank

Government charges and stamp duty

Unlike some other types of credit, personal loans in Australia generally do not attract stamp duty. However, this can depend on the state or territory and the type of loan. Because the rules are not uniform, you should check with your lender or a financial adviser to understand any government charges that may apply in your situation.

There is no standard personal loan stamp duty in the research material supplied, so it is important to ask the lender directly about any statutory charges that may be added.

How to compare loans including fees: comparison rate

The comparison rate is the interest rate plus additional fees and charges payable over the loan term. It is designed to help you compare the true cost of different loans. Because lenders are generally required to display the comparison rate when advertising a fixed-term consumer loan, you can use it as a quick reference.

However, the comparison rate may not include every possible fee, such as late payment fees or default charges. So it is not a complete substitute for reading the loan contract.

The comparison rate reflects this difference, so a loan with fees will have a higher comparison rate than a loan without fees at the same interest rate.

When comparing personal loans, gather the following information from each lender:

• Interest rate
• Comparison rate
• Establishment fee
• Monthly or annual fees
• Early repayment fee
• Late payment fee
• Any other charges mentioned in the lender's fee schedule

Sources: Australian Securities and Investments Commission (ASIC), Great Southern Bank

Ways to reduce or avoid fees

You can reduce or avoid fees on a personal loan in several ways. First, look for lenders that do not charge an establishment fee or that regularly waive it under promotion.

Second, choose a loan with no ongoing monthly fee and no early repayment fee if you can.

Third, manage your account carefully to avoid late payment fees and dishonour fees. Set up direct debits and monitor your balance to ensure payments are covered.

Finally, read the loan contract and fee schedule before you sign so you understand exactly what you may be charged for.

Sources: Harmoney Australia, Great Southern Bank, ING, Plenti, CommBank