5 things to know about personal loan fees

Reading the fine print can save you some money. (iStock)

From an unexpected, expensive car repair to funding a small business, personal loans can come in handy for a variety of life expenses. One of the advantages of personal loans is that they can be used for just about anything from paying off a credit card to general debt consolidation. With interest rates at record lows, personal loans can also be an affordable way to borrow money.

As beneficial as these unsecured loans are, it’s possible to get hit with unexpected associated fees during the loan process that could result in you paying back more than you expected. Five personal loan fees personal loan borrowers encounter that can be significant and costly include fees such as a late fee, a returned check fee,  an application fee and more.

Credible can do the heavy lifting for you when it comes to personal loan shopping. With the click of a button, you can view multiple lenders, rates, and terms in one spot.


1. Prepayment penalty fee

The longer you take to pay back a loan, the more interest you will pay. In fact, lenders bank on borrowers using the full repayment term. As a result, some charge borrowers a penalty if you pay off your loan early. The amount can vary. Some lenders charge a flat fee while others may calculate it on a percentage of the loan amount or remaining monthly payments. If you intend to pay back the money sooner than required, be sure to choose your lender wisely and check for a prepayment penalty fee. You can explore your personal loan options by visiting an online marketplace like Credible to compare rates and lenders.

2. Late payment fee

On the flip side of paying off a loan early is making a late payment. Just like with any type of loan or monthly bills, paying after the due date can result in a late fee. How much you’ll pay, however, will vary. Some lenders charge a flat fee while others may charge a percentage of the monthly payments. You can avoid this fee by paying your bill by its due date or signing up for automatic payments. But it’s still a good idea to check the amount you could be liable for before signing the loan contract to avoid any surprises.


3. Returned check fee

A returned check, or insufficient funds, fee is charged if there isn’t enough money in your bank account to cover your payment. This could be from a bounced check or insufficient funds to cover an automatic payment. This fee, often coupled with a late payment fee, is usually a flat amount, running between $20 and $50.

4. Application fee

Some lenders will charge you to apply for the loan, and this fee is typically nonrefundable. The reason banks give for the fee is to cover the cost of processing your loan application, such as dedicating employee time and obtaining a copy of your credit report. If you’re not approved for the loan, you still have to pay it, so make sure you’ll qualify before applying. The amount will vary by lender, usually ranging from $25 to $50. Not all lenders charge this fee. It can help to visit Credible to get in touch with experienced loan officers who can answer your personal loan questions before you’re hit with a charge.

5. Origination fee

Another potential personal loan fee is a loan origination fee, also called a processing or underwriting fee. This type of fee is common on mortgages or student loans, and some lenders — usually online lenders — tack it onto a personal loan, rolling it into the loan amount. How much you’ll pay will vary. Some charge a flat fee and others charge a percentage of your loan, ranging from 1% to 10%. The amount you’re charged is usually determined by your credit score. If you have excellent credit, you’ll likely pay on the low end. Borrowers with poor credit may still be approved but they will often pay on the high side.


How to avoid personal loan fees

It’s possible to avoid paying some fees on unsecured loans because not all banks charge them. Start by closely comparing lenders and rates.

Once you find rates and terms that look acceptable, read the fine print. Lenders must disclose all the charges upfront. Even lenders that don’t charge an application fee, origination fee or prepayment penalty fee will likely charge you for a late payment or a bounced check.

Be sure you understand how much extra you’re paying so you can determine if a personal loan is a smart choice. Visit Credible to use their personal loans calculator to determine how a loan can impact your budget.

Whatever you choose, go into a loan with your eyes wide open — looking for fees. They can add up, so be sure to take the steps you can to keep your money in your own pocket.

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