Bank Provision Fees: Explanation and How to Calculate Them

Bittime - Provision fees are one of the costs charged to customers when applying for loans or credit at banks and other financial institutions. This fee is usually charged for Home Ownership Credit (KPR), Unsecured Credit (KTA), Multi-Purpose Credit (KMG), and similar credit products. Credit applicants need to understand the amount of provision fees and how to calculate them so they are not surprised by the discounts charged by the bank.

Understanding Provision Costs

Provision fees are fees that must be paid by credit applicants as a form of compensation for processing and disbursing loans. This fee is only charged once at the start of credit approval. The amount of provision fees varies depending on the policies of each bank or financial institution. Generally, banks set provision fees ranging from 0.5% to 3.5% of the total approved loan.

In some cases, provision fees can be paid separately by the customer or deducted directly from the loan amount disbursed. For example, if someone applies for a mortgage with a provision fee of 1%, then of the total loan of IDR 300 million, the provision fee is IDR 3 million, so the funds received are only IDR 297 million.

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Difference between Provision Costs and Administration Costs

Many people often confuse provision fees with administration fees. Even though both are charged in the credit application process, they both have different functions. Provision fees are charged as compensation for credit disbursement, while administration fees are used for document processing and other operational costs. Administration fees usually have a fixed nominal value, ranging from IDR 250 thousand to IDR 500 thousand, while provision fees are calculated based on a percentage of the loan amount.

Types of Additional Fees when Applying for Credit

Apart from provision and administration fees, credit applicants also need to take into account several other additional fees, such as contingency fees, insurance fees, annual fees and late payment penalties. Contingency fees are generally applied as reserve funds for possible risks that arise in credit agreements. 

Meanwhile, insurance fees are charged to provide protection to borrowers in cases of default due to certain conditions such as accidents or death. Apart from that, there is also an annual fee which ranges from 1% to 2% of the loan ceiling in the first year as well as late fees if installment payments are not made on time.

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How to Calculate Provision Costs

The calculation of provision fees is quite simple, namely by multiplying the provision percentage by the approved loan amount. For example, if someone gets a loan of IDR 500 million with a provision fee of 1.5%, then the provision fee is IDR 7.5 million. Thus, the funds received by the borrower after deducting provisions are IDR 492.5 million.

Can you apply for credit without provision fees?

Several banks or financial institutions offer special promotions in the form of free provision fees for certain credit products. Usually, this promo is given within a certain period or for customers with a good credit profile. In addition, customers who have permanent jobs and are of productive age, namely 21 to 51 years, often have a greater chance of getting a fee-free offer.

Understanding provision fees and other additional costs is very important before applying for a loan. Apart from preparing funds to pay this fee, applicants also need to ensure their credit score is in good condition so that their credit application is not rejected. By thoroughly understanding the cost breakdown, applicants can better manage their finances and avoid unexpected cost surprises.

FAQ

1. Are provision fees negotiable? 

Not all banks allow negotiation of provision fees. However, in some cases, banks may provide certain discounts or promotions that allow customers to get discounts on provision fees.

2. Can the provision fee be refunded if the loan is cancelled? 

Generally, provision fees are non-refundable after the loan is approved and disbursed. Therefore, make sure to consider carefully before applying for a loan.

3. How do I find out the amount of provision fees before applying for a loan? 

Prospective borrowers can ask the bank directly or see the details of the fees in the brochure or on the official website of the bank concerned.

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Reference

Pawnshop Friends, Provision Costs: Get to Know the Definition and How to Calculate Them, accessed March 11, 2025.

Author: MF