People often go for the loan with the lowest possible interest rate and the smallest possible down payment when they are trying to find a solar finance option. This is because it is normal practice. In principle, this may be a sound strategy; nevertheless, if you put it into reality, you run the risk of falling for an offer that is simply too good to be true.
This is because some financing alternatives may give the impression of having simple terms. But in reality, they contain expensive up-front and ongoing costs.
These unseen costs can have a significant influence on the amount that you are required to pay back on a monthly basis and can add up to a significant sum over the life of the loan. Because of this, it is extremely important to have a solid understanding of what exactly these fees are and how much they will set you back.
What is a hidden fee?
When taking out a solar loan, borrowers may be subject to a variety of unanticipated costs that collectively make up “hidden fees.” The term “hidden fees” refers to the fact that you are typically ignorant of these fees until after they have been charged to your account, and in other instances, you may not even be aware that you are paying them at all.
Even while most of the hidden fees are only a few dollars, the total amount can have a significant impact on your account even if they are only charged occasionally. There are some expenses that are not upfront that can have a significant impact on your loan and cause problems for your personal finances.
5 hidden fees to watch out for
1. Origination fee
When looking for a solar loan, you will most likely run across origination fees. These are also sometimes referred to as dealer fees. These fees are among the most potentially harmful hidden costs.
The origination fee is a price that loan providers charge borrowers to cover the costs of processing the loan application. This fee is often calculated as a percentage of the total amount that is borrowed. On the other hand, origination fees for conventional loans would typically vary anywhere from 1-5 %. However, some Solar Finance providers can charge an origination fee of up to 30%.
Most applicants don’t know how much they’ll be charged until after the loan is authorized. Because of this, this form of fee conveys the impression of deception and often leads to predatory accusations.
To put this into perspective: a $20,000 Solar Finance could see you paying an extra $6,000 as an origination fee. By comparison, a traditional $20,000 bank loan would only charge an origination fee of $200-$1,000.
Lenders turn to origination fees as a means of mitigating risk while simultaneously boosting profit margins. They are also able to claim a cheaper interest rate since they include origination fees with their various loan alternatives. This allows them to avoid suffering financially. Companies that provide solar finance can trick clients into taking out a loan that isn’t as tempting as it first seemed.
Explanation of the Origination Fee
For instance, if you take out a loan for $20,000 over the course of five years with the promise that there will be no interest charged. But the loan also comes with an origination fee of 30%, you will end up paying back more than if you had taken out a loan with an interest rate of 10 percent.
Because some Solar Finance providers charge such high origination costs, it is imperative that you carefully look over any loan application before committing to it. If you want more transparency, a conventional bank loan may be best.
2. Application fee
Many lenders will want you to pay an application fee in addition to the loan amount when you apply for a loan. Whether or not it is secured. In most cases, loan providers will charge this fee regardless of whether your application is granted.
The application cost for a personal loan is often a nominal, one-time fee between $20 and $50. Nevertheless, the amount depends on the lender. You should also be aware that certain lenders will charge you an application fee of several hundred dollars. Therefore, always keep this in mind.
This type of cost may be frustrating. However, as long as standard charges are charged, it is understandable. It covers administrative charges incurred by lenders and the cost of obtaining a copy of your credit report.
3. Prepayment penalty
Prepayment costs aren’t as widespread as some of the other fees on this list. But they may still be applicable to some solar financing alternatives.
When you pay off some debts before the end of the loan’s term, the lender may charge you an early repayment fee. Therefore, if you were to take up a loan with a term of ten years but pay it off in five years, certain Solar Finance providers would charge you a prepayment penalty.
When the loan is paid off early, the lender stands to lose money. To make up for these losses, prepayment penalties are put in place.
There is a possibility that you may be subject to a prepayment penalty of anywhere from 1% to 5% of the principal amount of your loan. Therefore, if you are thinking of paying off your loan early, you should review the terms of your loan very carefully.
4. Late payment fee
If you are late with a repayment, you will be subject to a late payment fee. On nearly all solar loans, regardless of the financial institution providing the loan, late payment fees are included.
Late payment fees are often either a fixed rate applied to each missed repayment or a small percentage of the total amount of the installment that was missed. The flat price will often fall between $25 and $50. And the percentage-based charge shouldn’t be any higher than 5% of the total amount that you owe in payback. The main reason lenders adopt late payment fines is to encourage borrowers to pay on time.
An annual fee, also known as an administration fee or loan service fee, is a charge that is often tagged onto your total loan amount at the end of every year. This fee is used to cover the costs that the lender incurs from managing your loan throughout the year.
5. Annual fee
In most cases, this fee will come as a flat fee that is incurred once per year. The amount will vary depending on the lender but in most cases will not exceed $100 per year.
Tips to avoid hidden Solar Finance fees
The origination cost is the worst hidden fee associated with solar financing, and you should avoid it.
Some of the other expenses we’ve addressed are more commonplace and should not cause alarm. For example, it is highly unusual that you would find a loan that does not charge a late payment fee for missed installments.
Follow these tips to avoid paying more than you bargained for:
- Compare and investigate as many Solar Finance possibilities as possible to get the best solution for your situation.
- Read the fine print of each loan application you submit.
- Ask potential lenders as many questions as possible.
- Before signing, negotiate any ambiguous clauses or costs with your lender.
- You should only obtain a loan if you are certain of your ability to repay.