Loan fees and closing costs often catch consumers by surprise, and it can ruin a purchase moments before the handshake. Most loans have some fees associated with them. They will differ for various loans, but the fees are similar – even if they have other names. Closing costs are primarily related to mortgage and real estate loans. They can pack a considerable punch and may even be sufficient to make people walk from the deal – especially when accompanied by unexpected fees. Here’s what you need to know about loan fees and closing costs to avoid a few unpleasant surprises at the closing table.

Types of Loan Fees

As mentioned above, different types of loans carry different kinds of fees. Some of the most prevalent fees you may see when taking out a loan for a new vehicle, for instance, include the following:

• Title fees
• Registration fees
• Destination charges
• Rust-proofing fees
• VIN-etching (VIN stands for vehicle identification number) fees
• Paint or fabric protection fees
• Advertising fees
• Document fees

Yes, there is a fee for everything. The good news is that while some of these fees are unavoidable, you can negotiate against some or request that the dealership skip some of the services that carry fees.

Another fee you’ll find with many personal loans, including auto loans, is the loan origination fee. This fee usually comes as a percentage of the total loan amount. Most lenders charge between one and eight percent for this fee, which can add up quickly. Most lenders will gladly wrap the origination fee into the financing package, which means you’ll pay even more for this fee in the long run because you’ll be paying interest on the total amount.

While most loans have origination fees, and each lender has its own formula for determining those fees, you can do things to ensure you’re getting the lowest possible fee a given lender offers. One of the most important is to develop a good credit history and improve your credit score before applying for a loan.

Types of Closing Costs

Closing costs are a catch-all phrase that encompasses various fees that must be paid at the closing table when closing on a mortgage loan. Different types of fees fall beneath this umbrella, including the following:

• Title search fees. This search ensures that no one else has a claim on your home.
• Title insurance. Protects lenders if issues arise after the sale and are usually required by your lender.
• Property taxes. This will vary according to laws in your state, but buyers must typically pay all or part of the year’s property taxes at the closing table.
• Home appraisal fees. Covers the costs of appraising your home so the lender can determine if the value of your home exceeds the amount they are lending you.
• Home inspection fees. An optional fee that is well worth the investment and is generally paid before you get to the closing table.
• Loan origination fees. A necessary component of most loans, origination fees vary among lenders.
• Underwriting fees. Sometimes referred to as administrative or processing fees, these fees cover the costs of determining your eligibility for the loan.
• Points. Essential but optional fees that can help reduce the interest rate on your mortgage. For every point you purchase, you can reduce your interest rate on the mortgage, effectively reducing the amount you’ll pay on your home over the entire life of your mortgage. The savings can be huge.

These fees do not cover other fees you may face when buying a home, such as Realtor fees and real estate attorney fees. Remember those, as they can impact your ability to seal the deal and ultimately purchase your home.

How Loan Fees and Closing Costs are Structured

Some closing costs and loan fees can be wrapped in your mortgage. However, this is not the case for all of them, and some will have to be paid when you close the loan. Unfortunately, you can’t always estimate or determine the amounts of fees and closing costs ahead of the closing. Because lenders all have different criteria and fee structures and borrowers all bring different credit histories and risks to the closing table, there is no clear way to determine who will have to pay how much ahead of time.

Negotiating Loan Fees and Closing Costs

The most important thing you can do is negotiate fees and closing costs beforehand. This will help to ensure you’re not hit with unpleasant surprises you can’t afford and can make the loan more affordable. Ask auto dealers, for instance, to skip unnecessary services that add fees to the bill. Other things you can do to reduce or mitigate some of these fees and costs include:

• Take time to improve your credit before applying for loans.
• Double-check credit reports to ensure all information is accurate and current.
• Consider shorter loan terms.
• Make higher down payments to reduce the amount you borrow.
• Consider a co-signer with outstanding credit.

Ultimately, there are no guarantees for keeping closing costs and loan fees down, but these things may help.