There are many charges involved in case of a personal loan. The charges are even more when one takes a personal loan with bad credit history. Banks lend money as part of their business norms. In return they charge you to ensure that they incur profit and see to it that the operational cost is covered.
The following are a few factors that determine the fee or charges your bank will apply on your bad credit personal loan.
The rate of interest is applicable on the sum of money actually lent by the bank. That’s not all, the rates of interest also known as ARR is applied after taking into consideration factors like risk taken by the bank. The risk would be taken on the basis that what is the probability of the borrower defaulting the loan taken by him. Also, the value of money changes with time. With inflation the future value of money diminishes, which needs to be taken into consideration. Say, the value of $ 1000 today and Value of $ 1000 after 5 years would not be the same.
A bank needs to make provisions for the future value of money. Hence, the charge applied by the bank on your bad credit personal loan is always higher if the tenure is also higher.
When a bank lends money, they are sure that throughout the tenure of the loan, they would earn interest from the borrower. It is a form of investment for them. As a result, when someone wants to pay off their loans on a earlier date the bank may charge a penalty that would compensate for the loss they would have made on the unearned interest.
All these factors together actually determine what are the charges and fees a bank can charge you on bad credit personal loan.