How to Sniff out Hidden Fees
Not-so-fantastic fees and where to find them!
Scavenger hunts can be really fun, especially when they’re well designed, with cleverly hidden objects to find. Unless those “hidden objects” are fees. Then the scavenger hunt becomes a lot less fun and a lot more necessary.
Whether you’re looking to buy a house, buy a car, take out a personal loan, or some other sort of financial transaction, you need to be on the lookout for hidden fees. Once you sign the papers, you’ll be on the hook for whatever fees you agreed to, whether you noticed them or not. That’s why it’s vital to sniff out those hidden fees beforehand.
Here’s just a sample of what you should be smelling for …
Credit card fees.
Credit cards are notorious for hitting users with fees both known and unknown. That’s why the government has had to regularly step in and regulate the credit card industry, such as with the CARD Act of 2009. And while, the CARD Act took some steps towards regulating hidden fees, like requiring consumers to opt-in to over-the-limit fees, there are still many fees to be aware of when considering a credit card.
Many credit cards will have annual fees that you’ll need to pay each year that the card is open. And although you technically have to opt-in to fees for going over your credit limit, some card providers may raise your interest rates if you do or if you’re late in payments.
The initial APR you see when you sign up for a card may also be a “promotional offer” with a built-in hike later on. The CARD Act requires advance notice for a rate hike, but you still need to be very careful when it comes to reading the fine print on your credit cards.
Ideally, if you’re paying off your credit card bill in full every month, you should never have to pay anything else beyond a possible annual fee.
Personal loan fees.
Credit cards are just one form of personal loan. Whenever you need a relatively small personal installment loan, perhaps for car repairs or a surprise medical expense, there are going to be many hidden fees you’ll want to watch for.
“Loans are filled with fees, and it is up to the borrower to read the contract carefully before signing any paperwork,” warned Jared Weitz, CEO and Founder of United Capital Source Inc. “Look out for specific details around application fees, late payment fees, and even prepayment fees. In order to run a credit check and background check, lenders are paying money upfront for these services.
“To cover these fees, a loan application or processing fee is typically charged. Be sure to read over what this cost is and when it will be requested to pay. Lenders will either ask for payment prior to or after approval of the loan.”
As with credit cards, you’ll also want to make sure you’re making all of your payments on time.
“Late payment fees are a big one to look out for when reviewing a loan,” advised Weitz. “A late payment fee will be charged either as a flat fee or as a percentage of your loan’s outstanding balance. If it is the latter, make sure you understand the percentage and calculate it into your loan payment total. Protect yourself by setting up an auto payment or a personal reminder so you always pay on time and don’t get charged an exorbitant late fee.
So you might consider just paying off the loan as quickly as possible. But you need to be careful and make sure you won’t be fined for that, either.
“One fee people might not think twice about is prepayment fees,” urged Weitz. “Yes, lenders can charge you for paying too early. In some cases, the lender can lose money when you pay your loan off too quickly. They will be missing out on the extra interest payments you would’ve made throughout the course of the loan. This can become quite costly, so be sure to read through the fine print of your loan and don’t be shy about asking questions directly to your loan officer for confirmation of prepayment penalties.”
Car buying fees.
Buying a car is very expensive. That’s why it’s all the more important to be aware of the hidden fees that can come with the process.
We recently wrote about dealer financing, which can be rife with hidden fees. But no matter how you’re paying for a car, you should look over the contract very closely, and ask about every possible fee or charge. Dealers will often add any number of fees under unassuming names. Try to haggle away any additional fees you see or consider going to another dealer if you find that there are too many additional charges being foisted on you.
There are taxes and other required fees the dealer won’t actually be able to budge on, but you should be willing to push back on specious charges like “advertising fees” or “delivery fees.”
Home buying fees.
Buying a home is even more expensive than buying a car. Unless you’re buying a motorhome, and then it’s the same price. The point is, buying a home is another minefield of hidden fees!
The good news is that we’ve also written about the hidden costs of homeownership! And the first section of that article is all about the hidden fees for the actual closing process.
You’ll probably have less flexibility about the fees you pay when it comes to buying a house, but the higher costs mean it’s all the more important that you be aware of what you’re getting into.
When it comes right down to it, you should always be reading anything you sign very carefully. Practice makes perfect, and soon you’ll be perfect at sniffing out those hidden fees.
Jared Weitz (@jaredweitz) has been in the financial services industry for over 10 years. Due to his extensive work experience and deep network of close financial relationships, he handles a multitude of different finance options for his clients and contacts. Over the years, he has held positions in some of the largest business financing companies in the U.S. Some of his roles have been: Underwriter, Director of Business Development, Managing Partner and currently, CEO of United Capital Source, LLC.
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