In a loan transaction involving an agent or broker, a "loan agreement fee" can refer to two distinct types of charges:
- Fees charged to the borrower by the lender: These are standard fees outlined in the loan agreement, such as processing fees, documentation charges, stamp duty, or origination fees, which cover the lender's administrative costs.
- Commissions earned by the agent/broker: This is compensation paid for the agent's service in facilitating the loan, typically a percentage of the loan amount.
Fees Paid by the Borrower (to the Lender)
The borrower is responsible for paying various fees associated with processing the loan application and preparing the legal agreement. These are explicitly detailed in the final loan agreement and often deducted from the disbursed loan amount. Common examples include:
- Processing Fees/Origination Fees: A one-time charge by the lender for handling the loan request, underwriting, and other administrative tasks. This is typically a percentage of the loan amount (e.g., 0.5% to 3%).
- Documentation Charges: Fees for preparing and formalizing the physical loan documents.
- Stamp Duty and Registration Fees: Government levies payable as per state laws for the legal registration of the loan agreement.
- Legal and Valuation Fees: Charges for the legal verification of documents and valuation of any property used as collateral.
Fees/Commissions Paid to the Agent (by the Lender or Borrower)
A loan agent (or broker/Direct Sales Agent) facilitates the connection between a borrower and a lender and assists with the application process. Their compensation mechanism depends on the arrangement:
- Lender-paid commission: In most typical home loan or personal loan scenarios, the agent receives a commission directly from the bank or financial institution once the loan is successfully disbursed. The borrower generally does not pay this commission out of pocket, and it is not an extra charge on top of the standard lender fees mentioned in the loan agreement. Commission rates vary by loan type (e.g., home loans 0.25%-1%, personal loans 1%-3%).
- Borrower-paid fee: In some specific cases, particularly for complex commercial loans or if using an independent broker, the agent and borrower may have a separate agreement where the borrower pays a service fee directly to the agent (e.g., 0.5% to 2% of the loan amount). Reputable brokers are transparent about their fee structure upfront to avoid hidden costs.
Key Takeaway for Borrowers: Borrowers should carefully review the loan agreement and any separate agent agreements to understand all associated costs. Legitimate bank charges are usually deducted from the loan amount or paid directly to the bank, and borrowers should not pay unreceipted cash fees to an agent.
