You will be able to add processing fees, admin charges and early repayment penalties into your comparison of two loans.
Two banks offer you the same personal loan: S$10,000 over five years at 3% flat. Same rate, same term, same S$191.67 a month. You pick the one whose app you already have. A week later the money arrives and it is S$9,500, not S$10,000. The other S$500 was a processing fee, taken off the top, and it was in the terms all along.
The headline rate tells you how interest is charged, and nothing about what else the loan costs. In this lesson you add those fees and charges into your comparison. Every figure here is made up for the example.
A processing fee is a one-off charge for setting up the loan, and lenders collect it in one of two ways: some deduct it from the money they pay out to you, while others add it to the amount you owe, and in both cases you repay more for every dollar of cash you actually get to use.
Look at what the deduction does in the example. You repay S$191.67 a month for 60 months, S$11,500 in total, exactly as you would without the fee. But you only received S$9,500. Your real cost of borrowing is S$11,500 minus S$9,500, which is S$2,000, not S$1,500. You are paying interest on S$10,000 for five years while only ever having S$9,500 to use.
That pushes the EIR up. Without a fee, this loan's EIR is about 5.6%, as you saw in lesson 3.2, Why a flat rate loan costs nearly double what it looks like. When the same sixty payments are set against S$9,500 instead, the EIR comes out at about 7.8%, and a smaller fee of S$200 would still lift it to about 6.5%, while the advertised flat rate stays at 3% throughout.
Some costs only arrive if your plans change, so they are easy to skip when you sign. Two matter most.
Early repayment charges apply if you pay the loan off before the term ends. Maybe a bonus arrives, or you want to clear the debt before a big purchase. Some loans charge a fee for this, and on flat rate loans the terms set out how much of the remaining interest you still owe when you settle early. Read that clause, because it decides whether paying early actually saves you money.
Late payment charges apply if an instalment is missed or paid late. Usually there is a fee, and sometimes extra interest on the overdue amount. If your income varies, or you are already juggling several due dates, this clause deserves as much attention as the rate.
Neither charge shows up in the headline, and in most cases the EIR leaves them out as well, because it assumes you pay every instalment on time until the last one. Write them down next to the EIR when you compare two loans, so a loan that is cheap only if nothing goes wrong does not look cheap by default.
Put the two banks side by side. Bank one charges no processing fee: you receive S$10,000, repay S$11,500, and the EIR is about 5.6%. Bank two takes S$500: you receive S$9,500, repay S$11,500, and the EIR is about 7.8%. The advertised rate is 3% flat at both. If you compared the banners, you would call it a tie. On EIR, one costs noticeably more than the other.
Lenders in Singapore usually state an EIR on the offer, and that is the figure to read. When the EIR counts a processing fee taken from the loan, it folds the most common difference between two offers into one number. If you are not sure whether it does, ask the lender.
The other trap is the number people feel most directly: how much leaves their account each month. A lender can always make the instalment smaller by stretching the term.
Take the same S$10,000 at 3% flat with no fee. Over five years you pay about S$191.67 a month and S$11,500 altogether. Stretch it to seven years and the instalment falls to about S$144.05, which feels like a better deal right up until you multiply it out: 84 payments come to S$12,100, so the gentler monthly figure costs you S$600 more in total. Whether you can afford the instalment is a fair question to ask, but the choice between two loans belongs to the EIR and the total amount repaid.
Every loan has a section in its terms, or a fee schedule, that lists these charges. It is usually a page or two of small print with headings such as fees and charges, early redemption or late payment. Treat it as part of the price, the same way you treat the rate, because that page decides the gap between the cash you get and the sum you pay back. Have a calculator next to you when you read it.
For one loan offer, list every fee in the terms and work out how much cash you receive versus how much you repay in total.
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