Junk fees is a sarcastic street term used to describe the endless itemized expenses lenders list out to show borrowers so as to justify why there are so much costs involved upfront in issuing a loan.
Labeling cost items as junk fees are usually reserved for item fees that are expressed in dollars rather than a percentage of the loan.
The exception is the origination fee which many also consider a junk fee item.
Where these charges come from is unclear and any effort to clarify it with a banker is usually met with template answers that don’t really answer anything.
Interest rates however, are part of the cost of credit and they are tax deductible.
So they are therefore, not classified as junk fee items.
When it comes to smaller loans, very often junk fees can cost a borrower much more than the interest charged on the loan quantum.
For example, a personal loan of $2,000 at 5% interest can have junk fess totaling $250 that is deducted directly from disbursement. This means that the borrower will be charged interest on $2,000 even though in reality, he was only given $1,750.
Sometimes, these fees can be waived by lenders. So do remember to request for it.
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