What are Lender Fees?

I know, talking about lender fees might not be as thrilling as the latest Netflix binge or your last TikTok scroll. But trust me, understanding this financial puzzle is like unlocking a level in the game of adulting. Private lenders typically hit borrowers with a lender fee, usually around 2% of the amount. This fee covers their hustle in handling the fund, scouting out private investors, and making things happen.

How Much Do Private Lenders Charge in Canada? 

Private Lenders come with their own set of rules and, yes, you guessed it, lender fees.

In the Canadian private lending scene, they’re throwing in this upfront fee along with the interest. Lenders usually swipe this fee off the total funds they’re handing out.

Let me break it down. For example, you’re tossing out a $80,000 loan, and there’s this 2% fee dancing into the picture. So, you’re only sliding $78,400 into the borrower’s hands. But, the interest is still doing its thing on the full $80,000.

What are the Lender Fees Charged by the Lender? 

When it comes to these lender fees, they’ve got more names than your favorite coffee shop’s menu. I’m talking about:

• Origination Fee – This fee covers the cost of setting up your loan.
• Application Fee – Consider it a small token for submitting your loan application.
• Processing Fee – This fee is like the behind-the-scenes magic, ensuring everything runs smoothly.
• Administration Fee – This one handles the paperwork and keeps everything organized.

But there are a few other fees that might pop up:

• Underwriting Fee – This fee supports the loan underwriting process, where your financial profile is carefully reviewed.
• Credit Report Fee – Covers the cost of obtaining your credit report, an essential part of the lending decision.
• Appraisal Fee – If your loan involves property, this fee pays for a professional appraisal to determine its value.
• Title Insurance – This fee ensures a smooth and secure transfer of property ownership.
• Prepayment Penalty – Some loans have this fee if you decide to pay off your loan early. Think of it as a “thank you” to the lender for the interest they’re missing out on.
• Late Payment Fee – A gentle reminder to stay on top of your payment schedule.

Who Pays the Legal Fees of Private Lenders? 

Curious about who foots the bill for a private lender’s legal fees? In Canada, it’s often a tag-team effort with the borrower. These lenders commonly ask borrowers to cover out-of-pocket expenses, including legal fees.

Say you’re lending $80,000 but need to shell out $3,000 to a lawyer to make it happen. Now, you may have the borrower pay you back a total of $83,000, including interest. Alternatively, you could advance only $77,000 to the borrower. Why the math acrobatics? This avoids nearly 4% of your hard-earned capital going towards legal fees.

Adding reimbursements into the lending mix isn’t just number juggling, but it’s also an effective move to cut down on risk. It’s like creating a financial safety net.

How Much Do Private Lending Lawyers Charge? 

Private lending lawyer fees in Canada vary, typically from $2,500 to $7,000. The final cost depends on the deal’s complexity and the lawyer’s hourly rate. Messier loans incur higher fees. Moreover, borrowers commonly reimburse lenders for legal expenses as an industry standard.

How is Private Lending Taxed?

The returns a borrower snags from private lending usually get taxed as interest income. Yup, that includes any fees you charge borrowers.

Should you roll with the personal lending or set up a business entity? Chat it up with an accountant who can break down the deets based on your personal situation.

Armed with this newfound wisdom, you’ll be strutting through the financial landscape like it’s your own personal catwalk.