Today’s borrowers have more lender options than ever. From online personal loan providers to local credit unions or big banks, the personal loan space has become increasingly competitive.
That makes it more affordable for borrowers, with lenders charging fewer personal loan fees and keeping costs low.
Knowing which personal loan fees to watch out for will help you catch easy-to-miss costs of borrowing. It will also help you save money and find the most affordable personal loan.
Watch out for personal loan fees
When shopping for the best personal loans, you’ll want to pay attention to two key pieces of information: the annual percentage rate (APR) and the personal loan fee schedule.
The APR is important because it includes all costs of the personal loan in one easy-to-compare figure. Unlike an interest rate, an APR must reflect the total costs of the loan, including origination fees and other charges.
A loan with a lower interest rate could actually cost more after loan fees are applied. But an APR will take those costs into account and show what the loan will actually cost you in each year of repayment.
The second item to look for is the fee schedule. This is a disclosure document that lenders are required to provide to a potential customer, according to the Truth in Lending Act.
It should fully outline all fees and charges on the loan. This will include standard fees that are part of the loan application and funding process, as well as costs that might be assessed during repayment, such as a late fee.
If your lender doesn’t provide this information upfront, ask to see it. Read the personal loan fees schedule carefully to make sure you understand the costs of the loan and won’t be stuck paying for charges you could have avoided.
Many reputable lenders charge an application fee to help cover the costs of processing a new loan application. This helps pay for the man hours, credit report fees, and other costs of determining if a new borrower is creditworthy.
An application fee is usually a nonrefundable, flat cost paid upon submitting a loan application. Not all lenders charge an application fee on personal loans, however. If you want to avoid it, try applying first with lenders who don’t charge it.
If you’re facing this fee from a lender you want to apply with, check their credit requirements to see if you’d qualify. Otherwise, you could pay an application fee just to get a rejection letter in return.
Personal loan origination fee
An origination fee (also known as a disbursement fee or a loan fee) is what the lender charges when funding loans to a borrower. This is usually charged as a percentage of the total loan balance, often between 1 and 5 percent.
Many personal loan providers will charge an origination fee by rolling it into the loan amount when the funds are disbursed.
On a $10,000 loan with a 4% origination fee, for example, the origination fee would be $400. So $10,000 would be disbursed to the borrower, but the actual loan amount would be $10,400.
Again, not every lender will charge an origination fee, so shop around. Citizens Bank, Laurel Road, CommonBond, Earnest, and SoFi are a few online lenders offering personal loans with no origination fees, for example. These lenders do not require an application fee for personal loans, either.
Late payment fee
Once you begin repaying your personal loan, make monthly payments on time to avoid damaging your credit with a late payment. You’ll also avoid the cost of a late payment fee.
In cases of a late payment, most personal lenders will charge a flat fee. In some cases, the late fee is a percentage of your payment.
SoFi and Citizens Bank, for instance, charge a late fee equal to 4 or 5 percent of the monthly payment. Discover charges a flat rate of $39 for every late payment.
If you know ahead of the due date that you can’t afford to make your payment on time, contact your lender. Some may be willing to extend your payment deadline, give you a grace period, accept a partial on-time payment, or provide other options to avoid a late payment fee.
Returned check fee
In addition to late fees, many lenders will assess a returned check fee or nonsufficient funds fee when applicable. This happens if a borrower pays by check and that check bounces or is returned because there’s not enough in the bank account to cover the payment.
The lender will usually charge a returned check fee to cover the costs of processing the bounced payment and returning it to the bank.
Check processing fee
How you make your payments can also affect the fees you’ll face. Some lenders will charge a fee every month to borrowers who pay by check. Lending Club, for instance, levies a $7 charge to process payments made by paper check to cover their extra processing costs.
To avoid this fee, you can set up direct debits from your account. Setting this up could even qualify you for an automatic payment interest rate discount.
Personal loan credit insurance
Many personal loan providers offer credit insurance. This is insurance for your debt, so that if you become unable to repay the loan (due to death or disability, for example), the insurer will pay your debts instead.
Credit insurance premiums can be as low as $1 to $2 a month and are typically rolled into your monthly loan payments.
However, be aware that credit insurance is not required on personal loans. You can take advantage of this service if you want, but don’t buy claims that you are required to insure your loan.
That is simply untrue — and false claims like these are signs of predatory lending practices.
Prepayment fees, also called exit fees, are costs incurred by paying a loan back ahead of schedule.
Typically these are charged if a borrower pays off a loan in full before the scheduled final payment. For example, if you had a five-year personal loan that you paid off in four years, this could trigger an exit fee (if it’s part of your original loan agreement).
Exit fees sort of make sense for the lender. After all, if a borrower repays a loan early, the lender misses out on interest income it was expecting. Some lenders will charge a prepayment fee to help compensate for that loss of income.
But with prepayment, a lender is also getting all of its money back, which eliminates any risk. Additionally, many borrowers frown on prepayment penalties and want the flexibility to repay a loan early if they can.
Because of this, prepayment fees are becoming less common. It’s likely your lender will not charge this fee, but it’s always a good idea to ask.
Like prepayment fees, many once-common personal loan fees are easy to avoid today. By comparing your personal loan options you can find the one with the most affordable fees and costs. It’ll keep it affordable now, and help you get out of debt that much faster later on.
Interested in a personal loan?Here are the top personal loan lenders of 2017!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
Citizens Bank Disclosures
Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of July 1, 2017, the one-month LIBOR rate is 1.22%. Variable interest rates range from 6.01% - 15.96% (6.01% - 15.96% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% - 16.24% (5.99% - 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
|5.67% - 29.99%||$1,000 - $50,000||Visit Upstart|
|5.17% - 14.24%1||$5,000 - $100,000||Visit SoFi|
|8.00% - 25.00%||$5,000 - $35,000||Visit Payoff|
|5.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$5,000 - $50,000||Visit LendingClub|
|5.25% - 12.00%||$2,000 - $50,000||Visit Earnest|
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