When people apply for solar loans, they are mostly unaware of the hidden fees attached. This is because they are always attracted to loans with minimal interest rates.
While going for loans with minimal interest rates may seem like a good choice in terms of logical thinking but, in reality may end up being a big risk, this is because these hidden fees would more likely than not have a major impact on your monthly payments and in turn cost you a lot of thousands over the loan time frame.
Types of Solar Loans
Before we begin to talk about these hidden fees, it is important to know about the 2 types of solar loans.
These loans include;
1.Secured loan
2.Unsecured loan.
1. Secured loan
In a secured loan, the lender requires collateral like a landed asset.
This acts as a form of security for the lender should in any case the borrower is unable to make payments.
This loan type attracts low-interest rates.
2. Unsecured loan
The unsecured loan type doesn’t require any form of collateral but, they have higher interest rates because the lender is at higher risk.
What Are Hidden Fees?
Hidden fees are those fees that borrowers are unexpectedly charged when taking out a loan.
They are most times unaware of these fees or other times ignorant about them until they have been charged.
You might end up completing your loan payments without even realizing that you paid them.
Some of these fees may be small while in other scenarios, these fees can cause major problems for your finances.
5 Hidden Fees to Look Out For in Solar Loans
There are 5 major hidden fees to look out for in a solar loans application.
These fees include:
1.Origination fee
2.Application fee
3.Prepayment fee
4.Late payment fee
5.Annual fee
1. Origination Fee
An origination fee is one of the fees you would most likely come across when processing a solar loan application. The origination fee is one of the highly harmful hidden costs.
What is an Origination Fee?
An origination fee is an amount of money usually charged by lenders to cover the processing expenses of your loan.
It is normally charged as a percentage of the total amount of money borrowed. It is also known as the dealer’s fee.
Normally, the origination fee rates fall between 1%-5% for conventional loans but, in the case of some solar loan providers, they carry an origination fee as high as 30% of your actual loan.
Most times, borrowers are hardly aware of how much they would have to pay as the origination fee till the loan has been approved.
Here is an example to further explain this: a $20000 solar loan could see you paying an extra $6000 as an origination fee. Meanwhile, a bank loan would only charge an extra $200-$1000.
So when you take a $20,000 loan for a course of 5 years with a promise of no interest charges, but there is an origination fee of 30%, you would end up paying an extra $6,000 which is more than you would have paid over a loan with a 10% interest rate.
2. Application Fee
A lot of lenders will want to add an application fee to the loan amount when you apply for a loan whether it is a secured loan or an unsecured loan.
Loan providers will always charge this fee whether your loan gets approved or not.
Application fees are usually small, between the range of $20-$50. Although some lenders charge hundreds of dollars ( this is a red flag ). This fee can be annoying especially when the loan is not granted.
3. Prepayment Penalty
A prepayment penalty is not as rampant as other fees but can still occur with some solar loan providers. If you pay your debt before the end of the loan term, then a prepayment penalty would apply to you.
So if the initial loan term was 8 years and you manage to pay off the loan in 4 years then you would be served with a prepayment penalty.
This is to aid the lender gain on the profits lost from the cut loan term.
Prepayment penalty charge ranges from about 1%-5% of the original loan amount.
4. Late Payment Fee
A late payment fee is the extra amount charged when you fail to make repayment on time.
The flat fee will usually range from $25-$500. It should not exceed 5% of your repayment amount.
The main aim of late payment fees is to encourage borrowers to make the repayment in time.
Late payment fees can either be a fixed amount based on each missed repayment or based on a small percentage of the total amount of installments missed.
5. Annual Fee
An annual fee can also be called an administration fee or loan service fee.
It often comes as a flat fee that is incurred once per year.
The amount will vary depending on the solar loan lender but, it will not exceed $100 per year.
Conclusion
The origination fee remains the most dangerous fee associated with the solar loan and as such should be carefully avoided.
The other fees are normal and as such should not raise an alarm.
Key Takeaways
- Compare as many solar loan providers as possible and choose a provider that best suits your financial status.
- Make sure to read the fine print of any loan application you submit
- Ask your potential lender as many questions as needed.
- Make sure to negotiate unclear terms and fees with your lender before signing any contract.
- Do not take on a loan you’re not able to pay.
