What is Loan Processing Fee?

For most of first time borrowers in either a SACCO or any financial institution, the name ‘loan processing fee’ sounds like a nightmare. It comes into play after one has fulfilled the basic items in the credit worthiness’’ check list. Most of the borrowers hate it, but the lending institutions cannot do without it.

Loan processing fee is money, which the loan applicant pays to the lending institution for the applied loan. The amount can be either a flat fee or a percent-age of the applied loan amount. Procedures on how the fee is applied differ from one institution to another. In some lending institutions, the loan applicant is required to pay cash while in others; they either deduct the fees from the disbursed loan amount or add it on top of the applied amount.

There are a number of benefits of Loan Processing Fee to the borrower and the lending institution. Firstly, part of the fee is used by the lender in insuring the disbursed loan. In case of the borrower dying before the loan is repaid, the insurance company pays-off the loan. This relieves the burden from the deceased family in settling debts left by the gone borrower. To the lending institution, it brings about total security to the funds the organization lends out. Lastly, sometimes loan appraisal procedure requires expenses such as transports, phone bills and legal consultations when viewing loan collaterals. So, it’s part of the loan processing fee which is used to fund those activities.

Therefore, whenever you are planning to apply for a loan from any lending institution including DWASCO SACCO, plan for the loan processing as well.

Remember: ‘When a DWASCO SACCO member dies, his/her loan dies as well” as the loan processing fee takes good care of the deceased’s loan balance.